worker3After nine-plus years of writing about employment law in Connecticut, it’s getting to be pretty rare to find a topic that I haven’t at least touched upon, but here’s one: The Duty of Loyalty.

Indeed, a new Connecticut Supreme Court case is giving me the opportunity to do so.

The case arises from an employee who, while working for one employer, was secretly working as an independent contractor for a competitor.  The employer sued under a breach of the duty of loyalty claim.

The case, Wall Systems Inc. v. Pompa, officially released last week, can be downloaded here.

Lawyers will look at the case because it sets forth what types of damages are recoverable when a breach of a duty of loyalty claim is established.  In doing so, the court makes it clear that a trial court has some discretion in fashioning the appropriate remedy:

We agree with the plaintiff that the remedies of forfeiture of compensation paid by an employer, and disgorgement of amounts received from third parties, are available when an employer proves that its employee has breached his or her duty of loyalty, regardless of whether the employer has proven damages as a result of that breach. Nevertheless, the remedies are not mandatory upon the finding of a breach of the duty of loyalty, intentional or otherwise, but rather, are discretionary ones whose imposition is dependent upon the equities of the case at hand. Moreover, while certain factors, including harm to the employer, should not preclude a finding that the employee has committed a breach of the duty of loyalty, they nevertheless may be considered in the fashioning of a remedy. Here, because the trial court properly exercised its broad discretion when it awarded damages but declined to order forfeiture or disgorgement, we will not disturb its judgment on this basis.

But I think the more interesting point for companies is to understand the scope of the duty of loyalty.

In discussing the scope of this duty, the Connecticut Supreme Court reaffirmed principles that were last set forth in detail over 50 years ago in Town & Country House & Homes Service, Inc. v. Evans.  In that case, the court found an employee breached the duty of loyalty by soliciting employer’s customers for his own competing business while still working for the employer.

The court noted that an employee’s duty of loyalty includes “the duty not to compete … and the duty not to disclose confidential information”.  The court noted that this duty not to compete is during the employment relationship — not necessarily after — and is not dependent on the use of employer’s property of confidential information.

The court went on to say that the duty of loyalty “also includes the duty to refreain from acquiring material benefits from third parties in connection with transaction undertaken on the employer’s behalf.”  What does this mean? Essentially, it bars the collection of “secret commissions and kickbacks which might cause the employee to act at the expense or detriment of his or her employer”.

An employer may seek the forfeiture of an employee’s compensation for the period of disloyalty, but the court concludes that such a remedy is an equitable one and subject to the facts of the particular case.

But it’s always important to read the footnotes and here, in footnote 9, the Court inserted the notion that the duty of loyalty may not apply all employees.  “The scope of the duty of loyalty that an employee owes to an employer may vary with the nature of their relationship. Employees occupying a position of trust and confidence, for example, owe a higher duty than those performing low-level tasks.”

Still, the case is an excellent one for employers to keep in mind — particularly if the employer does not have restrictive covenants with its employees.  If the employees are engaging in competing work while still employed, the employer can use this case — and the theories behind it — to see the appropriate remedies.

With the appropriate employee, the employer can further strengthen its arguments, but including this in an employment agreement along with restrictive covenants.  In such a case, the court reminds parties that an employer could then terminate that agreement prematurely and seek recovery of damages directly attributable to the employee’s breach.

Employers should consider consulting with their favored outside counsel to see how this decision may apply to them.

 

The Connecticut Appellate Court will officially release an opinion next week that reaffirms that the interactive process required by both the Americans with Disabilities Act and the state law equivalent to discuss a reasonable accommodation to a disability, requires the employee to engage in the process as well.

The case, Festa v. Board of Education, can be downloaded here.

The case is significant because ever since the Connecticut Supreme Court decided that state anti-discrimination laws contained a reasonable accommodation component a few years ago, the exact parameters of what that should look like, have been debated and discussed.

The facts in this new case, though are replete with an employee that, in the court’s view, failed to engage in the interactive process with the employer.  In doing so, the court outlined what is expected of both the employer and the employee, quoting verbatim a federal Seventh Circuit court decision.

Neither the ADA nor the regulations assign responsi- bility for when the interactive process fails. No hard and fast rule will suffice, because neither party should be able to cause a breakdown in the process for the purpose of either avoiding or inflicting liability. Rather, courts should look for signs of failure to participate in good faith or failure by one of the parties to make reasonable efforts to help the other party determine what specific accommodations are necessary. A party that obstructs or delays the interactive process is not acting in good faith. A party that fails to communicate, by way of initiation or response, may also be acting in bad faith. In essence, courts should attempt to isolate the cause of the breakdown and then assign responsibility.

For employers, though, this decision is yet another case further expounding on the state anti-discrimination law. So far, both laws have been interpreted fairly consistently.

Employers ought to continue to be aware of their obligations under both the ADA and state anti-discrimination laws and make sure staff have been trained on what to do when an employee raises such an issue as well.

In a decision to be officially released tomorrow, the Connecticut Appellate Court has affirmed a dismissal of a breach of contract claim that alleged that the company failed to follow procedures that were outlined in a management training seminar. 

The case, Brule v. Nerac (download here), is important because it sets some limits to a theory that had been making the rounds the last few years that statements made during the course of employment could somehow change the at-will status of employees. 

So what was the case about? The court provides a brief summary:

The gravamen of these claims is that in 2003 Nerac provided a management training course, entitled ‘‘Managing Within the Law,’’ which was attended by certain Nerac managers…. The plaintiffs alleged that the training materials used in the course directed Nerac’s managers to provide progressive discipline, open communication and an opportunity for improvement prior to terminating their subordinates’ employment. By virtue of teaching the attendees the contents of this training course, the plaintiffs claimed, Nerac formed contractually binding obligations not to terminate its managing employees absent such discipline. …

Additionally, each plaintiff alleged that the individual defendants had committed negligence by terminating their employment. They claimed that the contracts of employment included a duty on the part of the individual defendants not to terminate their subordinates without affording progressive discipline and an opportunity to improve, and that the individual defendants had breached this duty by not providing these procedures prior to the plaintiffs’ terminations.

The employer had originally moved to strike the complaint on the grounds that the statements were too indefinite to form a contract and that there was no legal duty owed to the plaintiffs (and therefore, no negligence claim). The Superior Court had agreed. Upon appeal, the Appellate Court affirmed.

The court said the materials merely provided that progressive discipline was an option:

Our review of the course text reveals that the language at issue could not reasonably be construed as mandatory directives but instead was meant to inform the attendees on suggested managing practices. For example, in the section of the training materials entitled ‘‘At-will vs. Progressive Discipline,’’ the text allegedly stated: ‘‘[A]t- will employment . . . means that you do not have to
follow any specific procedures or processes before you terminate someone. You do not need to follow a specific ‘progressive discipline program.’ ’’ (Emphasis added.)

The materials went on to instruct the attendees that this language did not prohibit them from using progressive discipline as part of their management strategy; instead, it simply meant that they were ‘‘not bound by any formal rules or discipline.’’ This section is followed by a series of suggested principles that the managers should observe, including terminating employees without prior warning or discipline only when their conduct resulted in egregious company violations. The materials are devoid, however, of any language that demonstrates an intention to contractually bind the parties by way of directing the attendees to follow specified management procedures in a mandatory fashion.

What’s the takeaway for employers here? First, always have disclaimers that protect the at-will status of employers. Second, even in training program, words matter. Make sure that things cannot be taken out of context in a Powerpoint slide. And lastly, reconsider a progressive discipline policy — or at least the wording of it. 

I’ve previously talked about the issues with progressive discipline policies here.  If you still have them, it’s time to review them to ensure compliance with recent caselaw.