Tuesday, May 7, 2019

Lessons from Game of Thrones on an employee’s duty of loyalty #spoileralert

If you haven’t yet watched this week’s episode of Game of Thrones, consider yourself warned. There are spoilers below. Turn back now if you don’t want to be spoiled.

On Sunday night’s antepenultimate episode of Game of Thrones, some in Daenerys Targaryen’s inner sanctum, specifically Tyrion and Varys, began to wonder, quietly among themselves, whether she was the right person to sit on the Iron Throne. To set the stage, Dany first announced her plans to take King’s Landing (and the throne) at any cost, including burning thousands of civilians with her dragons. Varys objected to her plan, telling her that she could not be a fair and just ruler if she got their through indiscriminate murder. “Do not become what you have always struggled to defeat,” Varys warned her. Her response, that she would take the Iron Throne at any cost, did not land well with him.

Varys and Tyrion later continued the conversation in private, with Varys suggesting for the first time that maybe someone else was better suited to rule Westeros.

Varys: You know where my loyalty stands. You know I will never betray the realm. 
Tyrion: What is the realm? A vast continent home to millions of people, most of whom don’t care who sits on the Iron Throne. 
Varys: Millions of people, many of whom will die if the wrong person sits on that throne. We don’t know their names, but they’re just as real as you and I. They deserve to live. They deserve food for their children. I will act in their interest no matter the personal cost.

Thus, the seeds of treason have been planted.

All of which got me thinking … What duty of loyalty does an employee owe his or her employer? What can (and can’t) and employee do in jumping ship to a competitor? And what can an employer do about it (other than execute the disloyal employee, which will sadly be Varys’s likely fate this coming week or next).

Every employee owes his or her employer a duty of loyalty up to the moment he or she ceases employment. Per that duty, there are right ways, and wrong ways, for an employee to leave your company. Just because an employee is not subject to a non-competition agreement does not mean that he or she cannot be liable for mistakes made on the way out the door.

As one court aptly described this duty:

We equate breaches of duty of loyalty with the acts of a traitor. Traditional examples of breaches of loyalty duties in the employment context include acts of an employee in direct competition with the financial, proprietary, or business interests of an employer, thereby placing the personal interests of the employee before those of the employer, the sale or distribution of employer’s protected trade secrets, and a myriad of other destructive acts amounting to more than mere mistaken judgment or negligence.

Your employee may prepare to compete against you while still in your employ without violating this duty of loyalty. There are many reasons why an employee may choose to prepare to compete while still employed. Some need the income provided by ongoing employment. Some want a degree of certainty that their new competitive venture will be ready to operate. Some may derive an eventual competitive advantage from continued association with their present employer (such as knowledge of pricing or business plans, or ongoing associations with key employees, customers, and vendors).

There are certain steps that an employee can legally take to prepare to compete without violating this duty of loyalty, even while still employed and even if done stealthily:

  • Incorporating the new firm.
  • Arranging for space and equipment.
  • Securing financing.
  • Making future business plans.

Those preparatory steps, however, are subject to certain legal limits during an employee’s prior employment. The duty of loyalty prohibits employees from doing any of the following while still your employee:

  • Using your property (computers, for instance) to prepare to compete.
  • Using confidential information or trade secrets to prepare to compete.
  • Starting the competing operation.
  • Soliciting employees or customers for the new enterprise.
  • Holding back business opportunities or diverting them to the new enterprise.

What can you do to best position yourself to defend against your employees engaging in these illegal activities? Consider these six ideas.

  1. Require that key employees sign noncompetition agreements.

  2. Impose non-solicitation agreements on a wider subset of employees.

  3. Have all employees sign confidential information and trade secret policies, or, at a minimum, incorporate these policies into your employee handbook.

  4. Incorporate statements about employee loyalty into the handbook.

  5. Do not accept notice periods upon resignation for any employee who you think is a risk to compete.

  6. Consider forensic examinations of computers and email accounts for any employee you reasonably believe was engaging in unlawful conduct during his or her employment.

Finally, and perhaps most importantly, do your diligence when hiring employees. It goes without saying that you must ask whether a potential employee is bound by any agreements that could prohibit him or her from working for you or performing certain functions for you. And, you also must direct all new hires not to bring anything with them that belonged to their old employer (e.g., trade secrets or other confidential information).

More fundamentally, though, ask yourself how did that employee leave prior jobs? If they were dishonest with a previous employer, what makes you think they will treat you any differently if a better opportunity presents itself. Your employees are who they are, just as Varys is who he is. He has always been loyal to the realm, and it will almost certainly result in his demise. Don’t hire dishonest employees unless you want to suffer a similar fate.

* Image by Pat Loika [CC BY 2.0], via Wikimedia Commons