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Cameco, Inc. v. Gedicke

157 N.J. 504, 724 A.2d 783 (1999)

EMPLOYER-EMPLOYEE; NON-COMPETITION—An employee may breach a duty of loyalty by assisting an employer’s competitors even if the employee doesn’t compete directly with the employer.

This appeal concerned the liability of an employee for breach of the duty of loyalty owed to his employer. The primary issue here was whether the employer may prove a prima facie case for an employee’s breach of that duty by proving not that the employee directly competed with the employer, but merely assisted the employer’s competitor. The employee was a salaried traffic manager who was responsible for arranging for the transportation of his employer’s food products. His duties included coordinating his employer’s shipping schedules, negotiating the lowest possible shipping rates, and supervising the warehouse employees who rode in the employer’s trucks. His duties also included inspecting his employer’s off-site warehouses for cleanliness and temperature maintenance. Because of his position, he became familiar with the identity of his employer’s suppliers, customers, and common carriers, as well as its delivery routes and rates. Without informing the employer, the traffic manager and his wife formed a company in which they arranged for the transportation of goods from various companies, including two of the employer’s competitors. On more than 600 occasions, the employee arranged for a trucker transporting his employer’s goods also to transport goods for his own customers. By reason of sharing space and costs with its employee’s own customers, the employer often paid a rate even lower than it would otherwise have paid. Thus, the employer benefitted from the commingling of goods. The employee conducted most of his business from home, primarily during the evenings and weekends. An analysis showed that the employee spent an average of less than fifteen minutes per workday on calls made from his company’s place of business, without expense to the company. The lower court concluded that: (a) the employee had not breached his duty of loyalty to his employer; (b) that he had not acted for anyone whose interests conflicted with those of his employer; (c) that his actions were not detrimental to his employer; (d) that he had not competed directly with his employer: and (e) that the employer had suffered no damages.

On the employer’s appeal, the Appellate Division reversed and remanded for a new trial, but only on the claim regarding breach of the duty of loyalty. The employee was not an officer, director or shareholder of his employer and he was not bound by a covenant not to compete. There was no contention that the employee’s own company was a direct competitor of his employer. Consequently, the case was not one in which an employee, while employed by one employer, advanced his own interests by seeking other employment. Nor was it one in which an employee surreptitiously tried to capture the employer’s business, disparage its products, or divert its business to another. Rather, the case was one in which a salaried employee, while working for his employer, supplemented his income by establishing a business that may have assisted certain of his employer’s competitors although it did not compete directly with his employer. Hence, the question focused on the level of assistance to a competitor that would justify a finding that an employee breached a duty of loyalty owed to his or her employer.

Absent a complete factual set of findings, the Supreme Court was unable to complete a definitive analysis on the dispositive rules of law. Consequently, it remanded the matter to the lower court for disposition. In its view, the scope of the duty of loyalty that an employee owes to an employer may vary with the nature of their relationship. Employees occupying a position of trust and confidence, for example, owe a higher duty than those performing low-level tasks. Assisting an employer’s competitor can constitute a breach of the employee’s duty of loyalty. Similarly, an employee’s self-dealing may breach that duty. To avoid the possibility of a charge of disloyalty, the Court found that employees generally should inform employers of their plans before establishing an independent business that might conflict with that of the employer. The greater the possibility that the other occupation will conflict with the employee’s duties to the employer, the greater the need for the employee to alert the employer to that possibility. In addition, the egregiousness of the employee’s conduct may affect the determination of both the commission of a breach and the appropriate remedy. Depending on the facts of the case, an employee’s breach of the duty of loyalty can give rise to either equitable or legal relief. In an appropriate case, damages may include profits the employee earned in another enterprise while still employed, and compensation for a direct injury suffered by the employer as a result of the employee’s breach. The Court held that if, on remand, the lower court concluded the employee breached his duty of loyalty, the lower court must then consider the appropriate remedy. Two forms of relief might be appropriate for such a breach—forfeiture of the employee’s salary and/or an award of part of his own company’s profits. According to the Court, of the two, forfeiture of part of his salary seemed more appropriate. The employee did not compete directly with his employer, but only marginally aided two of his employer’s competitors. Further, he did not seek to destroy or injure his employer’s business. In summary, the Court, viewing the company’s evidence in the most favorable light, held that the company had adduced sufficient evidence to survive the employee’s motion to dismiss.


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