10.5 Restraints Imposed by Law

• Library: Employment Law in Virginia (Virginia CLE) (2020 Ed.)

10.5 RESTRAINTS IMPOSED BY LAW

10.501 In General. During employment, an employee owes a duty of loyalty to, and has a duty not to compete with, the employer. ¹¹⁰ The employee may, however, make arrangements during employment to compete following departure, absent a contractual restriction. ¹¹¹ Unless the employee has agreed not to work for a competitor after leaving the employer, the departing employee may go to work immediately for the former employer's fiercest competitor. ¹¹² But the employee does not have free rein—the law does impose restrictions on the employee's conduct to prevent the employee from engaging in competitive practices that are regarded as unfair. For example, solicitation of an employer's clients or other employees before termination, misappropriation of trade secrets, and misuse of confidential information are all breaches of the duty of

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loyalty. ¹¹³ Because numerous factors may be at play as an employee's predeparture conduct is evaluated, a case-by-case analysis is required. ¹¹⁴

10.502 Solicitation of Former Employer's Customers. An employee cannot, before departing, solicit the employer's customers on behalf of the new employer or engage in other activities directly harmful to the employer. ¹¹⁵ Until the employment relationship is severed, the employee may not compete with the employer. The employee must prefer the employer's interest to his or her own. ¹¹⁶

After departing, the employee may solicit the former employer's customers—including those the employee personally serviced—but may not use confidential information or trade secrets in the process, because the employee has a continuing, limited duty to the former employer. ¹¹⁷ Because of this duty, the employee must not, in competition with the former employer, use or disclose to others "trade secrets, written lists of names, or other similar confidential matters given to him only for the [former employer's] use or acquired by the employee in violation of his duty." ¹¹⁸ Although the former employee may not take written customer lists, the employee may contact those customers whose identities the employee has retained in memory. ¹¹⁹

10.503 Misuse of Confidential Information. An employee owes a common law duty to the employer to preserve the confidentiality of trade secrets and other confidential information that comes to the employee in the course of employment. The employee must exercise the utmost good faith,

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loyalty, and honesty toward the employer. ¹²⁰ The employee has a duty with respect to information coming to the employee in the course of employment— that is, a duty not to reveal confidential information. ¹²¹ Examples are internal financial data, marketing strategy, and secret pricing information. ¹²²

Factors that may be considered in determining whether information that an employee has disclosed, or is about to disclose, is confidential are:

1.	To what extent is the information already known both inside and outside the former employer's business? If it is generally known in the industry, or can be obtained with relative ease from trade journals or directories, it may not be confidential;
2.	Has the former employer adequately protected the secrecy of the information and notified employees that it is considered confidential? Has the former employer maintained reasonable procedures to protect the confidentiality of the information? Is the information accessible electronically? If so, is it password protected? If the information is available on a widespread or casual basis inside the former employer's company, particularly to employees with no legitimate need to know, it may not be entitled to protection;
3.	What is the commercial value of the information to the former employer and the competitor? The information must provide a demonstrable economic advantage to the competitor; and

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4. How much time and money were spent by the former employer to develop the information, and how easily could the information be duplicated by the new employer without the former employee's assistance?

10.504 Statutory Conspiracy to Injure Business. Sections 18.2-499 and 18.2-500 of the Virginia Code prohibit actions by two or more persons to injure another in reputation, trade, business, or profession. Conduct that violates these provisions is a Class 1 misdemeanor and is subject to a suit for injunctive relief, treble damages, and attorney fees. ¹²³ The purpose of these sections is to protect businesses from conspiracies that result in business- related damages. ¹²⁴ To be actionable, the conduct must be directed at a property interest. ¹²⁵ Those protected are business organizations and individuals who own or operate a business. ¹²⁶ As to individuals, however, injury to personal reputation is not actionable under these statutes; ¹²⁷ injury to one's employment relationship or reputation also is not actionable. ¹²⁸

The elements of this conspiracy are (i) a combination or mutual association of two or more persons for the purpose of willfully and maliciously injuring another in his or her business and (ii) resulting damage. ¹²⁹ To survive demurrer, the plaintiff must set forth the core facts that support the conspiracy claim. ¹³⁰ The acts constituting the conspiracy must be pled with

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particularity. ¹³¹ The plaintiff need not prove, however, that the defendants' primary and overriding purpose was to injure the plaintiff's trade or business. It is sufficient to show that the defendants acted intentionally, purposefully, and without lawful justification. ¹³² Section 18.2-499 refers to injury "by any means whatever," but in order to recover, the plaintiff must show that the defendants combined "to accomplish some criminal or unlawful purpose, or to accomplish some purpose, not in itself criminal or unlawful, by criminal or unlawful means." ¹³³ Employees who planned a mass resignation to force the employer to accept their buyout offer and a competitor of the employer who assisted the employees were held liable for statutory business conspiracy. ¹³⁴ But it is not unlawful by itself to leave one's employment for a competitor and then attempt to persuade customers of the former employer to move their business to the competitor. ¹³⁵

A breach of a contract is not an "unlawful act" that would support a claim of statutory conspiracy. ¹³⁶ Rather, an act qualifies as "unlawful" under the statute only if it violates a duty that arises independent of any contractual duty. ¹³⁷

A former employee who goes to work for a competitor may be vulnerable to a charge of statutory conspiracy, since one of the employee's objectives indeed may be to take business away from the former employer, and this may in turn injure the former employer. In this case, the new employer may be

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considered a co-conspirator. ¹³⁸ Consequently, it is important for the employee to be careful in a new position not to engage in unlawful conduct or use "improper methods" (to employ the term used in Duggin v. Adams ¹³⁹ ) but rather to limit himself or herself to lawful competitive activities. The former employee and new employer may be able to defend themselves against a claim of conspiracy for acts committed after the new employment starts by relying upon the intracorporate conspiracy doctrine, which holds that a corporation cannot conspire with its own agents. ¹⁴⁰

It is not actionable for a former employee to induce other employees to follow him or her to a new employer if their employment is terminable at will and no improper methods are used. ¹⁴¹ Examples of "improper methods" are described in Duggin v. Adams ¹⁴² and Hilb, Rogal & Hamilton Co. v. DePew. ¹⁴³

10.505 Common Law Conspiracy. In addition to statutory conspiracy, the concept of common law conspiracy may also impose restrictions on an employee's conduct. A common law conspiracy consists of two or more persons combined to accomplish, by some concerted action, some criminal or unlawful purpose by lawful means or some lawful purpose by unlawful

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means. ¹⁴⁴ The conspiracy must be the proximate cause of damages. ¹⁴⁵ In addition, a claim of common law civil conspiracy generally requires proof that an underlying tort was committed. ¹⁴⁶

10.506 Tortious Interference with Contracts.

A. In General. A former employee may be vulnerable to a charge of tortious interference with the economic relations of the former employer. The former employer may claim interference with existing and future business and, if other employees are enticed away, interference with employment contracts.

B. Contracts Not Terminable at Will. Elements of tortious interference with a contract not terminable at will are (i) the existence of a valid contractual relationship; (ii) knowledge of the relationship by the interferer; (iii) intentional interference inducing or causing the breach or the termination of the relationship; and (iv) resulting damage to the party whose relationship has been disrupted. ¹⁴⁷ Malice is not a required element of tortious

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interference. ¹⁴⁸ The gist of the action is unjustified interference, not ill will. An employee cannot be liable for tortious interference with his own employment agreement even if a third party is involved, but he may be liable for conspiracy to interfere when acting with the third party. ¹⁴⁹

Business justification is a defense to a claim of tortious interference. The defense is described in Chaves v. Johnson ¹⁵⁰ as similar, but not identical, to the defense of qualified privilege in the law of defamation. It is based on the relationships between the parties and striking a balance between the social desirability of protecting both the business relationship and the interferer's freedom of action. Specific grounds for the defense are legitimate business competition, financial interest, responsibility for the welfare of another, directing business policy, and giving requested advice.

The phrase "legitimate business...