Employees’ Duty of Loyalty Employer; Customer Lists and Competition

One of an employer’s most valuable assets, and the source of what is often its major expense, is its employees. New Jersey employment law establishes duties which an employee owes to its employer.

Employers have a legitimate expectation that their employees are working in their employers’ interest. In addition to paying employees’ salaries and benefits, employers make significant investments in their employees by training them and giving them the tools they need to be successful at their jobs. New Jersey employment law therefore imposes upon employees a duty of loyalty to their employers.

In a pair of cases Cameco, Inc. v. Gedicke (1999) and Lamorte Burns & Co., Inc. v. Walters (2001), the New Jersey Supreme Court explained this duty. The Supreme Court explained that an employee is required to act in her employer’s interest. An employee may violate this duty by showing that the employee “directly competed with the employer while employed, [or] that the employee while employed assisted the employer's competitor.”

Absent a restrictive covenant such as a non-compete agreement, this duty lasts only while the employee is still employed. Moreover, the Court noted that most employees who intend to leave their jobs plan their future while they are still employed. Thus, even when the plans include competing with the employer or looking for a job with a competitor, such planning does not violate the duty of loyalty provided that the employee still employed does not compete with her employer, solicit the employer’s other employees to leave while still employed, or take trade secrets.

Employers normally have significant amounts of confidential information which constitute “trade secrets” and are subject to protection under New Jersey employment law and business law. Trade secrets can include almost any protected information, but typical examples include customer contact information and files. Other examples include pricing (especially pricing with particular customers), business data compilation, secret formulas, prototypes and processes, techniques, patterns, programs, inventions, designs, diagrams, drawings and plans. In short, anything which a business keeps secrets that could potentially give it an advantage over its competitors.

Therefore New Jersey statutory and common law protect trade secrets. If an employee misappropriates trade secrets, her employer can seek monetary damages as well as equitable relief, such as return of the information and restraining orders.

Employers often – indeed, usually – need to give their employees access to their confidential information so the employees can use it to do their jobs. For instance, employees need to interact with customers and clients. To do so, they need their contact information, and often information about their operations, and what the employer charges them for goods and services.

Unless they are bound by a restrictive covenant nothing prohibits employees who leave a business from getting a new job, even if that means competing, directly or indirectly, with their former employers. They can also use their general knowledge in the process, including the skills they learned at their old job. However, they cannot use the confidential customer or client information they learned in the course of their former employment. They also cannot take their employer’s customer lists.

As in the case of misappropriation of other trade secrets, an employer can obtain both monetary and equitable relief against an employee who takes its customer lists, including return of the list and all copies (electronic or paper), and an injunction against the employee.

Our employment attorneys represent businesses whose employees have misappropriated customer lists or other confidential trade secrets. Call us at (973) 890-0004 or fill out the contact form to set up a consultation with one of our attorneys. We can help.