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Employees’ Duty of Loyalty, Competition and Customer Lists

the-dollar-3125419__340-300x200Some of the areas in which businesses make their largest investments of time and expense are trade secrets (including customer lists) customer relations and client development, and employee development.  However, these interests may conflict, especially when highly placed employees leave a firm.  This is an area of potentially bitter dispute in New Jersey business law and employment law.

Businesses have many trade secrets, but the most important of these is often information regarding its customers.  Because of intense competition, and the time, effort and expense which businesses invest in cultivating their clients, customer lists, especially customer lists in service industries, are protected by the common law and New Jerseys Trade Secrets Act.

Businesses also invest significant expense in training and developing their employees, even aside from salary and benefits.  Thus, New Jersey business law and employment law imposed a duty of loyalty on employees, even those who do not have a restrictive covenant.  This duty of loyalty prohibits employees from competing with their employers while they are employed.  An employee may not induce her employer’s employees or customers to leave her employer, nor may she appropriate her employer’s trade secrets.  The employee may plan to leave, and if the employee does not have a restrictive covenant she can even seek employment with competitors or even set up a business entity which will compete with the employer after she leaves. However, the employee cannot go beyond the planning stage while still employed.

Once the employee is no longer employed, if she is not covered by a restrictive covenant, she may compete with her former employer, including soliciting the former employer’s customers or clients.  However, while the employee may use the general skills she developed with her former employer, she may not use the employer’s confidential information.  This means that an employee may not take client lists or client information developed by the employer, such as files or contact information, if that information was given to the employee solely for use in furthering the employer’s interests, or was taken without permission by the leaving employee.

These obligations come from the employee’s common law duty of loyalty to her employer, the common law protection of trade secrets, and the New Jersey Trade Secrets Act of 2012.

An employee may not induce a fellow employee to leave their employer’s employment while the employee is still employed.  However, once the employee leaves her job she may solicit other employees of her former employer to leave providing he does not have a restrictive covenant and does not induce the other employee to breach an employment contract.

 

 

At McLaughlin & Nardi, LLC, our attorneys have a dual focus on New Jersey business law and employment law, representing businesses, employers and employees. We also negotiate and draft employment agreements and restrictive covenants, such as non-compete agreements and no-raiding agreements. This makes us uniquely situated to represent parties involved in disputes over potential violations of an employee’s violation of her duty of loyalty to her employer, and misappropriation of client lists and other trade secrets.

 

Call us at (973) 890-0004 or email us by completing the contact form on this page to schedule a consultation with one of our business attorneys.  We can help.