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Duty of Loyalty to Employer

Moonlighting can be more dangerous than you think.

All too often employees – especially those who are underpaid and underappreciated – consider moonlighting or starting their own business to augment their income. While we are strong believers in the cliché that people should follow their dreams and do what makes them happy, if (a) you are already employed and (b) in following your dreams your employer’s interests may be harmed, there are certain risks that you should consider first.

Employees generally owe a common law duty of loyalty to their employers which requires, at a minimum, to avoid diverting their employer’s business to themselves. The exact scope of this duty is extremely fact sensitive, and depends on the nature of the employee-employer relationship. Certainly, assisting an employer’s competitor is likely to constitute a breach of the duty of loyalty. Similarly, operating a business in direct competition with your employer is under most circumstances a breach of the duty of loyalty, particularly where the employee uses his or her position with the employer to obtain business that otherwise would have gone to the employer. This prohibition also applies to poaching employees of your current employer for your new business venture.

Because it is such a fact-sensitive inquiry, courts look to a number of factors to determine whether an employee violated the duty of loyalty, including: “(1) the ‘existence of contractual provisions’ relevant to the employee’s actions; 2) the employer’s knowledge of, or agreement to, the employee’s actions; 3) the ‘status of the employee and his or her relationship to the employer,’ e.g., corporate officer or director versus production line worker; and 4) the ‘nature of the employee’s [conduct] and its effect on the employer.” The court is focused on the “parties’ expectations” relating to the employee’s duties, as well as any factors suggesting the moonlighting was egregious; e.g., an employee using the employer’s resources to service their own clients. It is of particular note that any situation in which an employee holds a particularly sensitive position or a particularly strong position of trust with the employer is likely to make the duty of loyalty that much stronger.

Depending on the facts of the case, employees determined to have breached their duty of loyalty may be required to pay to their employer money earned while moonlighting, and may even be required to return the salary they earned from the employer under extreme circumstances. An employee may also be ordered to return or destroy any confidential, nonpublic data belonging to the employer they may have taken.

This duty of loyalty extends to other arenas as well. For example, employees may not disclose confidential, nonpublic information, such as client data, internal procedures, and financial data, to others. This restriction applies even after you have resigned your post with the employer.

We strongly encourage you to be entrepreneurial – to take a risk and go to work for yourself; but, it is important that you do so cautiously to avoid creating liability that could cripple your venture from the start. If you are looking towards a new business opportunity and you’re currently employed, we encourage you to contact Attorneys Hartman for advice and assistance in doing so in the most efficient, cost-effective, and liability-free way possible.

(1) Kaye v. Rosefielde, 223 N.J. 218, 230 (2015).
(2) Ibid. (citations omitted).
(3) Cameco, supra, 157 N.J. at 521-22.