Loyalty to One’s Employer in Utah: Is a Non-Competition Agreement Necessary to Prevent an Employee from Competing with an Employer?

Joseph G. Ballstaedt

Under Utah law, must an employee be loyal to his employer? How loyal? In what way? When does this duty apply?

This article briefly discusses some basic duties that form the relationship between employers and employees. It then discusses in depth an employee’s duty of loyalty to his employer. As explained below, the duty of loyalty exits in all employment relationships and prevents an employee from competing with his employer in certain ways. This duty exists even if an employee has not signed a non-competition agreement or similar agreement. However, the duty of loyalty is generally less demanding than a written non-compete, and it may only prevent an employee from engaging in certain behavior that is deceptive or improper.

Each Employee Has a Duty to Help Further His Employer’s Business

Generally, an employee acting within the scope of his employment is an agent to his employer and, as an understood condition of employment, the employee has a duty to further the business goals of the employer. With this duty comes the right to represent the employer in business transactions, and the employee’s actions are binding on the employer.

For instance, a salesman at a solar energy company is expected to engage customers who want to purchase solar panels and is expected to enter contract with those customers on the solar company’s behalf. The solar panel company cannot escape these contracts by claiming that its employee entered the contract on its behalf, not the company itself. (And the company wouldn’t want to do so since the contracts bring in desired revenue.) In our society, employees so commonly act as agents that such a claim would make no sense.

As a side note, employees should be careful to act within the proper scope of the authority granted to them by their employers; otherwise, they can be subject to various liabilities.

Employers Have a Duty (or Obligation) to Take Responsibility for Employee Conduct

Not only is a company generally bound to contracts its employees enter, but a company is also liable for harm to third parties caused by the acts or omissions of one of its employees. This doctrine is called respondeat superior, and it applies as long as the employee’s acts or omissions occur during the employee’s normal and regular course of employment. So, for instance, if a solar panel salesman is driving to a potential customer’s house to give a quote on solar panels and accidentally rear-ends another vehicle, the solar panel company is almost certainly on the hook for the damage to the vehicle caused by its employee. The solar panel company has a legal duty to assume liability for the damages its employee caused, which can potentially protect the employee from personal responsibility.

Each Employee Has a General Duty of Loyalty to His Employer

Among other duties, employees in Utah have a duty of loyalty to their employers. This duty exists in all employment relationships. It is important to understand what this duty of loyalty is and what it is not. The duty of loyalty is different than and in addition to duties set forth in a non-competition agreement, although the two are related. Usually, a non-competition agreement is a written agreement, agreed to and signed by an employee, which sets forth prohibited conduct. It is aimed at protecting the employer’s legitimate interests and explains in what manner an employee is prohibited from competing with the employer’s business and for what time period. Non-compete agreements generally contemplate competition after the employment relationship ends, but they can also address conduct during the employment relationship. Unlike a written non-competition agreement, a duty of loyalty by an employee to its employer exists even without a written agreement.

The duty of loyalty is likely less demanding than a non-competition agreement and probably only targets certain deceptive behavior. At its essence, a duty of loyalty prohibits an employee from improperly competing with his employer in the area of the employer’s business. Utah courts suggest that this duty of loyalty may even extend to mere employees and not just to agents who have expressly assumed a special fiduciary duty to their employers.

Although the duty of loyalty generally prevents an employee from taking action that is contrary to his employer’s interests, it does not prohibit any activity that could be viewed as disloyal behavior—utter and unquestionable loyalty is not required. Rather, the duty of loyalty has reasonable and expected limits. For instance, an at-will employee can obviously quit his job without breaching the duty of loyalty, even if the employer wants the employee to stay, and losing the employee is contrary to the employer’s interests. Also, an at-will employee can leave his employment and take with him any clients who want to follow him (assuming a non-solicitation, non-competition, or other type of written agreement doesn’t prohibit this conduct). Although such conduct is not considered “loyal,” it doesn’t breach the duty of loyalty under Utah law.

Other conduct is barred by the duty of loyalty. For example, an employee cannot use the company’s name and resources to obtain clients who, unknown to these clients, are paying the employee independently of the company, with the employee earning money directly, outside and apart from the employment compensation. This would be stealing, essentially.

To continue the solar panel company/salesman examples, the duty of loyalty would probably prevent a solar panel salesman from starting his own solar power business and then acting like an employee of the solar power business to obtain clients for his own solar power venture. This would be deceptive and smells like theft.

Help with Employment Issues Regarding Employment Rights and Duties

In navigating employment relationships, each employer and employee should be aware of and consider a whole range of legal issues and practical concerns, including duties of loyalty and non-competition. If you have questions about your relationship with an employee or an employer, including issues of loyalty and competition, I am happy to advise. I offer a free consultation. My direct dial is 801-365-1021, and you can e-mail me at joe@snjlegal.com.

Skoubye, Nielson, Johansen Attorneys Salt Lake City Utah

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