Jury to decide if employees breached duty of loyalty

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Where employees of a government contractor who learned of a subcontract the company was attempting to win then formed their own company, submitted a bid and won the subcontract, a jury will decide if they breached their duty of loyalty to their employer.

Background

While working for Adnet Inc., Rohit Soni, Laura Barr and Jason Laird learned of a subcontract that Adnet was attempting to win. Thereafter, defendants, through their own company, submitted a bid for that same subcontract. After defendants won the subcontract, Adnet sued them for breach of the duty of loyalty, tortious interference with a business relationship and business conspiracy. The district court granted defendants’ motion for summary judgment.

Breach of loyalty

In Williams v. Dominion Tech. Partners, L.L.C., 576 S.E.2d 752 (Va. 2003), the Virginia Supreme Court noted three circumstances in which an employee breaches his duty of loyalty: when he misappropriates trade secrets, misuses confidential information or solicits an employer’s clients or employees before his employment ends. However, the court specifically explained that these circumstances are simply examples of situations that “clearly constitute a breach of the duty of loyalty” and are “by no means exhaustive.”

Purporting to apply Williams, the district court stated that the inquiry before it was “narrow” “because Adnet does not allege misappropriation of trade secrets or the misuse of confidential information.” The district court then stated that “the only question,” therefore, was “whether defendants solicited plaintiff’s clients or other employees prior to their own termination of employment.”

But Williams in no way limited the circumstances in which a breach of the duty of loyalty can occur. The district court, therefore, erred by requiring Adnet to fall into one of those delineated examples in order to succeed on its breach of the duty of loyalty claim.

The district court also mistakenly added an element to this claim. It held that Adnet could not demonstrate a breach of the duty of loyalty because it did not have an objective business expectancy in GDIT’s subcontract. However, whether Adnet had such an expectancy is irrelevant because there is no objective business expectancy element for a breach of loyalty claim in Virginia.

Applying the correct legal principles, a reasonable juror could conclude that employees, like defendants, breach their duty of loyalty to their employer when they learn of a potential business opportunity through their employment and then participate in a direct competition with their employer for that opportunity while still employed. Accordingly, summary judgment to defendants was inappropriate.

Tortious interference

Adnet next argues that the district court also erred by concluding that no reasonable jury could find that it had a valid business expectancy with GDIT and therefore erroneously granted summary judgment to defendants on its claim for tortious interference with a business relationship. This court agrees.

Adnet points to GDIT’s “concrete steps” towards awarding Adnet the subcontract — stating that it would start the process with its subcontracts manager, requesting Adnet’s pricing and using that pricing to secure approved funding from the Army. Adnet also notes that GDIT’s subcontracts manager stated that it generally sole-sourced this type of subcontract and had not competed one in her 10 years at GDIT. The district court’s grant of summary judgment to defendants on Adnet’s tortious interference claim is reversed.

Business conspiracy

The district court concluded that because Adnet failed to establish either a breach of the duty of loyalty or tortious interference, there was no unlawful action that could be the predicate object of a conspiracy. Because this court concludes that there is sufficient evidence of both a breach of the duty of loyalty and tortious interference with a business relationship, Adnet’s claim for business conspiracy is remanded to the district court to determine in the first instance whether its remaining elements have been met.

Reversed in part, vacated in part and remanded.

Concurring opinion

Wilkinson, J., concurring:

Virginia employers and employees should view the disposition of this fact-bound case in the broader context of Virginia law. The commercial torts at hand can have the same anticompetitive effects as formal non-compete agreements without their offsetting benefits for workers, such as bargained-for consideration and contractual limits. I do not think our decision undermines the proposition that Virginia law confines the scope of commercial torts in recognition of the importance of employee rights and free competition.

Adnet Inc. v. Soni, Case No. 21-2182, April 27, 2023. 4th Cir. (Agee), from EDVA at Alexandria (Nachmanoff). James Yarnell Boland for Appellant. Palak Vinod Patel for Appellees. VLW 023-2-123. 25 pp.