Understanding any post-employment contractual restrictions you may have is the key to leaving your current employment and working for a competitor or other company. Some non-compete and non-solicitation provisions are written broadly, to prevent an employee from working for a competitor in any capacity for the specified amount of time. In Virginia, these provisions are only enforceable if they are narrowly drawn, and seek to protect the business’s legitimate interests, like client relationships and confidential information. The provisions also cannot be unduly burdensome or against public policy. Without a careful reading of your employment contract, and without the advice of an employment attorney, you may run into a host of legal claims against you.
The recent Eastern District of Virginia case, USI Insurance Services, LLC v. Ellis, highlights some of the legal claims that can arise. USI acquired Wells Fargo in December 2017. At that time, Ellis, was employed by Wells Fargo as a Commercial Risk Insurance Producer. Prior to the acquisition, Ellis entered into a two-year non-solicitation and non-service clause with Wells Fargo. After four years, Ellis was terminated for unspecified reasons. Ellis then went to work for one of USI’s former clients and competitor. USI learned that Ellis had allegedly diverted business from USI and conspired with former Wells Fargo employees to gain accounts at his new employer. Since these actions took place while under the two-year non-service term, USI sued Ellis. Outlined below are some of the claims brought against Ellis that are common when a former employee breaches their employment agreement to work for a competitor:
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Breach of Contract & Breach of Covenant of Good Faith and Fair Dealing
USI alleged the same facts in its claims for breach of contract and breach of covenant of good faith and fair dealing. These claims are similar, but can be brought as separate causes of action. Every contract made in Virginia implies a covenant of good faith and fair dealing. Enomoto v. Space Adventurers, Ltd., 624 F. Supp. 2d 443, 450 (E.D. Va. 2009). The elements of a claim for breach of an implied covenant of good faith and fair dealing are (1) a contractual relationship between the parties, and (2) a breach of the implied covenant. Id.
When leaving your employment, be sure to read your employment agreement to avoid a breach of the terms. If you are in breach, your former employer may bring a breach of the covenant of good faith and fair dealing claim in addition to a breach of contract claim. Examples of breaching the contract, and thus the covenant, can include inducing clients to move to the competitor or diverting employee accounts, among other things listed specifically in your contract. Before leaving a current employer, it is imperative to read your contract and consult an employment attorney to guide you through the transition to avoid potential breach of contract and covenant of good faith and fair dealing claims.
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Breach of the Duty of Loyalty
In Virginia, courts recognize that employees, including at-will employees, owe a fiduciary duty of loyalty to their employer during the term of employment. Williams v. Dominion Tech. Partners, LLC, 265 Va. 280, 289 (2003). Within this duty, it is assumed that an employee will not compete with their employer during his or her employment. Id. A breach of this duty would be an employee sharing trade secrets, misusing confidential information, or soliciting clients while the employee is still employed. Id.
If you are planning on leaving your current employment, be sure that you are remaining loyal to your current employer until you have left. To avoid claims for breach of duty of loyalty, do not use your current employer’s resources, clients, accounts, trade secrets, business strategies, or other confidential information to benefit you in your next position. Informing clients that you plan on leaving to work for a competitor and inducing them to follow you may create a valid claim against you. Employees cannot have one foot out the door working on their next venture while using current company resources to do so.
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Tortious Interference with Contractual Relations
The elements of tortious interference with contractual relations in Virginia are (1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferer; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resulting damage to the party whose relationship or expectancy has been disrupted. Schaechar v. Bouffault, 290 Va. 83, 106 (2015). Improper methods can be shown by alleging that the employee engaged in violence, threats, bribery, fraud, misrepresentation, duress, or misuse of confidential information to disrupt the contract. Id.
In the instant case, USI alleged that Ellis misused confidential information by using his USI email account to send information to USI’s competitors to help them prepare business quotes. The Court found this claim to be sufficiently alleged. If you intend to leave your employment, make sure you are not using any company resources when communicating with potential new employers, and avoid sharing confidential information to those outside your current company. If you choose to leave your employment, let the new company know you are legally obligated to keep information confidential and refrain from using your former client’s information to help the new company gain clients.
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Statutory Business Conspiracy
To successfully plead a claim for statutory business conspiracy, a party must allege (1) a combination of two or more persons for the purpose of willfully and maliciously injuring plaintiff in his business; and (2) resulting damage to plaintiff. Dunlap v. Cottman Transmission Sys., LLC, 287 Va. 214 (2014). Malice can be defined as acting “intentionally, purposely, and without lawful justification.” Id. USI alleged that Ellis conspired with two coworkers to divert client accounts from USI, which harmed its business financially.
Once you have decided to work for another company, including a competitor, do not solicit current coworkers to join you. You should also not include coworkers in any efforts to use resources or client accounts to help your new or future employer. If you do include coworkers in your preparations to work for a competitor, you may be liable for claims of conspiracy, in addition to others mentioned, like breach of contract.
Employment agreements and non-solicitation or non-compete provisions are not a one-size fits all approach. Being honest with your employer about leaving to work for a competitor may be a difficult conversation, but transparency may help ease the tension. It may also protect you in potential legal proceedings by showing that you did not make misrepresentations or act maliciously. Obtaining legal advice before giving notice to your current employer that you plan on leaving is the safest way to ensure a smooth transition.
If you need more guidance or information, contact the employment law attorneys at General Counsel, P.C. today at 703-556-0411, intake@gcpc.com, or use this Contact Us Form. Attorneys at General Counsel, P.C. specialize in labor and employment law and have experience working with businesses, non-profits, and individuals throughout the DC Metropolitan area and across Virginia, specifically in Fairfax County, Arlington, and Loudoun County.