The Duty of Loyalty Awakens

3 minute read | January.20.2016

If you’re a Star Wars fan, loyalty probably means waiting ten years for “The Force Awakens.” (Or even longer if you prefer not to count Episodes I-III). For an employee looking to leave her current employer, however, loyalty can take on a different meaning. An employee, while still employed, owes an “undivided duty of loyalty” to her employer. 

While California is, in many respects, considered to be the state providing the most protection to employees, under California law, an employee is still generally considered to be an agent owing a duty of loyalty to her employer. This is true even if the employee was not hired to be a representative of the company. So, an employee cannot take any actions that are “inimical” to the best interests of her employer – “inimical” meaning actions that are “adverse often by reason of hostility or malevolence” or “having the disposition of an enemy.” For example, an employee can’t transmit her employer’s confidential information for her own gain, nor can she do so for the benefit of another party.

Blackbird, an ecommerce search company, recently brought suit against a former employee, Joshi, for breach of his duty of loyalty. Blackbird Technologies, Inc. v. Joshi, No. 5:15-CV-04272-EJD, 2015 WL 5818067, at *4 (N.D. Cal. Oct. 6, 2015). While Joshi was working as a software engineer at Blackbird, he started working on his own project, Deep Lambda. Based on a YouTube demonstration video released by Joshi, Deep Lambda used almost the exact same technology as Blackbird. Deep Lambda’s website even boasted that its search technology was “exactly the same as that offered by Blackbird.” Joshi was eventually laid off for other reasons. After Blackbird found out about Deep Lambda, it sued Joshi and sought a preliminary injunction to prevent Joshi from using or disclosing Blackbird’s confidential information.

The court ruled in favor of Blackbird and granted a preliminary injunction. The court found that Joshi had likely breached his duty of loyalty to Blackbird. The court remarked that, regardless of whether Deep Lambda was an exact copy of Blackbird’s technology, and regardless of whether Joshi had developed the technology on his own time and using his own equipment, Joshi clearly “made significant progress toward a competing business.” To be sure, California law allows employees to seek other employment and even make “some preparations to compete” before resigning. But Joshi’s actions – building and marketing a competing website while employed by Blackbird – showed that he had transferred his loyalty to a competing business. His conduct crossed the line.

This case is a reminder that the duty of loyalty may apply to an employee’s conduct, even when the conduct does not rise to the level of breach of contract or trade secret misappropriation. The duty of loyalty can cover a wide range of competitive actions. Employees looking to start their own venture should be careful not to cross the line between making preparations and actually competing with their employer. Acting “inimical” to an employer might not be as dangerous as crossing the First Order, but it comes close.