I Can't Quit You! - Why Quitting A Company May Not Mean Quitting Fiduciary Duties in Virginia

In the case filed earlier this year in federal court in Virginia by spinal implant seller DePuy Synthes Sales, Inc. against two former employees and their current employer, DePuy’s competitor Sky Surgical, Inc., DePuy claims that Sky Surgical and the former employees conspired to breach the fiduciary duties that the former employees owed to DePuy by selling spinal implants to DePuy’s customers after they left DePuy.  (DePuy also claims that Sky Surgical tortiously interfered with the former employees’ non-competes – the subject of our post on Tuesday.)  We may think that quitting a company means quitting fiduciary duties, so that anything that the two former employees did after they left DePuy could not be breaching a duty to DePuy.   But it’s not that simple.  Not in Virginia, anyway.

Each officer and employee of a company owes a fiduciary duty of loyalty to the company, which means no competing with the company, stealing the company’s clients, or using the company’s confidential information to help a competitor.  We may not think of these “don’ts” as the “fiduciary duty of loyalty,” but we probably appreciate them intuitively.  While it is true that, absent a non-compete agreement, a former officer or employee is free to compete against the company that it left, in Virginia (see Today Homes, Inc. v. Williams), she could be found to have breached a fiduciary duty to the company for a transaction that began before she quit and was completed afterwards or for a transaction that was founded on information that she gained while she was working for the company.

In other words, a company should not rule out a breach of fiduciary duty claim against a departing officer or employee just because she waited until after she quit to seal the deal for herself on what would have been a great business opportunity for the company; and the officer or employee should not assume that all business opportunities that she learned about while she was at the company are hers for the taking once she quits.  Maybe the company has no claim and maybe it is open season for the officer or employee, but caution is in order because the law is not always intuitive and it varies from state to state. 

At least for now, DePuy’s claim against Sky Surgical and the two former employees for conspiracy to breach fiduciary duties is going forward.

• Fiduciary Duties
• Noncompete Agreements ‎