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Is there such a thing as employee loyalty?

Posted March 12, 2017
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Yes, there is, but not when compared to the loyalty of a pet. So what can you do if you discover a seriously disloyal employee? Even if you do not have a written agreement with the employee such as a non-compete agreement or non-solicit agreement (you can read up on these here), you can still protect your business from an employee that competes with you behind your back. All employees owe their employers a "duty of loyalty."  This means that your employees cannot do things that violate the trust and confidence you have bestowed on them. Employees sometimes violate this trust by working for a competitor - like moonlighting - or requiring kickbacks from vendors that their employer does business with, or disclosing their employer's confidential information. If you discover an employee doing similar things, you have protection.

You will have grounds to terminate the employee, which you don't even need if they are an "employee at will."  If they have a written employment contract, review it with a lawyer to determine your company's rights. Almost certainly the contract will have terms to terminate a disloyal employee with cause. Further investigation will determine the level of harm the employee inflicted on your business.  It may be substantial, or it may be somewhat minor. If the employee had access to financial information, accounting software, or checking accounts, you should have a forensic accountant review those accounts for improprieties. Your business may also have insurance coverage for employee theft, so you should put your insurance carrier on notice of a claim.

Connecticut law permits an employer who is the victim of employee disloyalty to recover damages, even if it cannot prove direct losses attributable to the disloyalty. One recent case you can read HERE, awarded the employer only about $43,000, even though the employer was looking for much more money. The employer did recover its attorney's fees incurred in pursuing the former employee, but the impact of a pending lawsuit on the business may not have been worth it. Under the right circumstances, the court can also order the disloyal employee to return (disgorge) compensation earned during the time of disloyalty. But the court has substantial discretion in determining how much it will award the harmed business.

So consider these claims carefully. Don't pursue them based on principle alone. Consult with a trusted attorney who can help your business decide the best course of action for it. And keep your employees loyal by treating them well. Give them the tools to feel like they are invested in the success of your business, this may be the best protection.

About the Author

Business Litigation Attorney Anthony Minchella

Tony represents Fortune 50 financial services companies, retail giants, and small and large specialty products companies in employment litigation, trade secret and non-competition litigation, and unfair trade practice issues. When acting as local counsel, Tony, an adjunct professor of law on Connecticut Civil Procedure at Quinnipiac Law School, helps lead counsel navigate the nuances of Connecticut state and federal court practice. Tony graduated magna cum laude from Quinnipiac University School of Law. He passed the New Jersey, New York and Connecticut bar exams and then moved on to careers with large and small firms which led to his boutique litigation practice.