September 16, 2014 Articles

Examining the Duty of Loyalty and the Corporate Opportunity Doctrine

When an employee resigns, many factors must be considered to determine whether the employer has any legal recourse.

By Melissa M. Goodman and Janet Ayyad Ismail

Consider this scenario: Employee X, who has worked for Company A for several years but was employed at will and never signed any agreement containing restrictive covenants, has just resigned to start a competing business. In addition, Company A discovers that, as part of the competing business, Employee X will be exclusively offering a new product manufactured by one of Company A’s main suppliers. The new product falls squarely within Company A’s line of business and portfolio of products. Employee X has the exclusive right to market the new product for two years. Within a matter of months, Company A’s revenues begin to decline as Employee X’s business begins to flourish and the demand for the new product increases.

What can Company A do to protect itself from Employee X’s competition? The answer depends on many factors, including Employee X’s conduct during and after employment with Company A, Employee X’s position within Company A, and the circumstances surrounding Employee X’s exclusive right to market the new product.

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