Every employee and officer owes a duty of loyalty to their employer regardless of whether they have a written employment agreement. In general, this duty requires employees and officers to treat the employer with the utmost candor, care, loyalty and good faith, and requires them not to act adversely to the employer's interests. However, the scope of this duty may vary depending on the assigned responsibilities of the particular employee or officer.
With regard to competition, the duty of loyalty prohibits employees or officers from improperly competing with their employers, enticing employees away from their employer, soliciting the employer’s customers, diverting business opportunities, exploiting their positions for their own self benefit, concealing important information and/or otherwise misappropriating the employer’s property or funds. In other words, they have to act in the interest of their employer and not engage in self-dealing. In addition, they may not take any action that is against the interest(s) of their employer.
However, with regard to competing against their employer, provided the employee is not bound by any restrictive covenants or has not breached a duty of loyalty, an employee may prepare to compete against their employer. An employee may form a competing business, enter into a lease or purchase office space, hire employees (provided they are not current co-employees) and otherwise outfit a competing business, all while still working for their employer. However, that employee may not begin competing against their employer until after they have left their employment.
Corporate officers are treated a little differently in that they owe a heightened duty of loyalty to their employer. It has been explained generally that an employee’s duty is one of loyalty and non-competition, while an officer’s duty is not to actively exploit the company for his or her personal gain. A corporate officer’s duty of loyalty includes (1) not actively exploiting their position within the corporation for their own personal benefit, and (2) not hindering the ability of the corporation to continue its business. For example, an officer might be found to have breached their duty if they fail to inform the company that employees are forming a rival company or engaging in other fiduciary breaches, solicit business from a customer before leaving the company, use the company’s facilities or equipment to assist them in developing their new business or solicit fellow employees to join a rival business.
Importantly, an employee or officer’s duty of loyalty to their employer ends once the employment relationship ends. That is one of the reasons that many employers require officers and key employees to enter into non-competition, non-solicitation and/or non-disclosure agreements and keep those agreements up to date. These agreements help prevent employees and officers from resigning and the next day starting to compete against their former employer using the knowledge and training gained during their employment.