I been wanting to write a series of blog posts about the most common types of claims that I see brought against South Carolina employees. For this first post, I’m going to focus on a claim for Breach of Duty of Loyalty.
South Carolina Employees Owe a Duty of Loyalty to their Employer
If you are employed in South Carolina, then you owe a duty of loyalty to your employer so long as you work there. This duty ends once you leave, but so long as you are being paid wages for your service, you have this duty to abide by. For the most part, this duty is a fairly common sense one. As an employee, you’re being paid to act in the best interest of your employer. If you take actions in contravention of that best interest, then you’ve likely violated the duty of loyalty.
For South Carolina employees, that means you could be sued by your employer, who will seek damages resulting from that breach.
Under South Carolina law, employees have “a duty not to do disloyal acts looking to future competition” with their employer. Lowndes Products, Inc. v. Brower, 259 S.C. 322, 333 (1972). “It is implicit in any contract for employment that the employee shall remain faithful to the employer’s interest throughout the term of employment. An employee has a duty of fidelity to his employer.” Berry v. Goodyear Tire & Rubber Co., 270 S.C. 489, 491, 242 S.E.2d 551, 552 (1978).
What Fee Arrangements Are Common to Defend against a Breach of Duty of Loyalty Claim?
As a South Carolina employment lawyer, I often handle cases where I’m defending an employee against civil claims brought by the company in a lawsuit. For most of the discrimination and harassment claims I bring against the company on behalf of an employee, I normally operate under a contingency fee arrangement, where I agree to be compensated for my time at the end of the case, but only if we can recover something for the employee. In that situation, I would receive a percentage of the total settlement proceeds or verdict amount.
But when I’m defending an employee, I’m normally operating on an hourly basis, meaning that the employee pays an hourly rate for all the work I perform on the case. I require a retainer up front to help cover the amount of legal work that will be required.
What Damages Can an Employer Claim Under a Breach of Duty of Loyalty Claim?
The primary measure of damages for a breach of duty of loyalty claim are the wages paid to an employee during the period of disloyalty. For example, if you spend the last two weeks of your employment actively solicited the company’s customers to come do business with you and your new company or employer, then your employer will seek reimbursement for the wages it paid to you during those two weeks.
Employers often seek other damages beyond reimbursement for wages. If the solicitation of customers, for example, results in that customer going to business with the employee at the new company, then the company may seek damages for lost profits as further damages under the breach of duty of loyalty claim.
Often these days, though, an employee may have signed an employment agreement with the employer, which likely contains a series of restrictive covenants. These restrictive covenants normally include an agreement not to compete with the employer both during employment and after employment ends, along with an agreement not to solicit customers for your own ends.
Thus, the act of soliciting a customer while still employed may breach both the duty of loyalty that applies to all South Carolina employees regardless of contract AND the contractual duty owed not to solicit or compete while still employed. This employment contract may also include a provision that requires the South Carolina employee to pay the company’s attorney’s fees, if the company sues the employee and wins at trial.
But What Doesn’t Breach of the Duty of Loyalty?
Of course, not every activity by the employee violates the duty of loyalty, despite what the company alleges. If the employee and company parted on bad terms, then hurt feelings can lead to some pretty silly lawsuits. Companies are just legal entities controlled by human beings, and business owners can be just as petty, vindictive, and ridiculous as the rest of humanity.
For example, “merely preparing and submitting forms to create a new corporation, for example, likely will be seen as permissible pre-termination planning” that is not a violation of the duty of loyalty. Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 610 (1999), citing Auxton Computer Enterprises, Inc. v. Parker, 416 A.2d 952, 955 (N.J. Super. Ct. App. Div. 1980) (holding that an employee, while still employed, may make arrangements to go to work for a competitor or establish his own business in competition with his employer). In Auxton, the New Jersey court noted that establishing a breach of employee loyalty claim requires “something more than preparation,” something that is “so harmful as to substantially hinder the employer in the continuation of his business.” 416 A.2d at 955.
For South Carolina employees, it’s important to be aware of your obligations to your employer, both under the duty of loyalty and under any other contractual provisions in an employment agreement. This becomes especially important when you reach the point of planning to leave and move to another job. Take special care to avoid even the appearance of wrongdoing, as innocent actions can be viewed more hostilely once you depart. Be aware that any actions you take on a work computer or phone can be tracked and recovered through computer forensics. Keep your nose clean, make a clean separation, and–hopefully–more on to the next job without any controversy.
If you do have any trouble with your former employer or get sued for a breach of duty of loyalty (or other claims), feel free to reach out to our office for a consultation and review of your legal options with me, your friendly neighborhood employment lawyer.