POSTED BY RICHARD D. TUSCHMAN ON DECEMBER 11, 2012
It has long been established under Florida law that employees have a duty of loyalty to their employer. Secretly assisting a competitor, or soliciting customers or employees for the benefit of a future employer, generally violates the employee’s duty of loyalty.
But certain actions that an employer may view as disloyal do not breach an employee's duty. "Blowing the whistle" on an employer's illegal activity is protected conduct and cannot be the basis for a breach of duty of loyalty claim. Similarly, an employee’s mere preparation to open a competing business, such as opening a bank account or obtaining office space or telephone service, does not breach the employee's duty of loyalty.
What about referring work to a competitor and receiving a commission from that competitor? While that might strike most employers as clearly disloyal, a recent case illustrates the defenses an employee may raise in response to such a claim.
In Hennegan Co. v. Arriola, 855 F. Supp. 2d 1354 (S.D. Fla. 2012), a printing company, Hennegan, sued its former salesman and head of its Miami office, Joseph Arriola, for breach of the duty of loyalty and other claims, and refused to pay certain commissions to him that he had earned at Hennegan. The suit revealed that while working for Hennegan, Arriola referred over $1,000,000 of business from two customers to a competitor called Solo, and earned over $300,000 in commissions from such referrals.
In defense of his actions, Arriola pointed to the fact that one of the customers insisted that its printing work be done in South Florida, where Hennegan did not have a printing facility. The CEO of the other customer had ordered its director of marketing to stop doing business with Hennegan. Arriola therefore referred these customers to Solo, which rewarded Arriola with a commission.
The court, in deciding that Arriola's actions did not breach his duty of loyalty, noted that under Florida law, although Arriola could not have usurped one of Hennegan's business opportunities for himself, he was free (absent a non-compete agreement) to engage in competitive activity if he acted in good faith and refrained from interference with his employer's business. The Court found that Arriola "acted in good faith when he referred out the business of customers after Hennegan was unable or unwilling to satisfy specific requirements of those customers." The court also determined that Arriola was entitled to his unpaid commissions from Hennegan.
Florida employers should, of course, be vigilant about their employees' business-related activities to ensure they are not breaching their duty of loyalty. But as the Hennegan case illustrates, what appears disloyal to an employer may be seen very differently by a court.