According to a recent survey, a full 30% of American employees moonlight, working on the side for a second (or even third) employer. The practice raises potentially serious issues under Minnesota’s duty of loyalty, as discussed in a recent Federal District Court case.
By way of background, readers of this blog know that all employees, without exception, owe their employer a “duty of loyalty.” Unlike contract-based post-employment restrictive covenants (non-competition and non-solicitation agreements), Minnesota’s duty of loyalty arises under common law, and requires that employees refrain from taking actions on or off the job adverse to their employer’s interests. Among other things, an employee may not divert business for personal benefit (a.k.a “feathering the nest”), or in any way compete with the company while still in its employ. Not all cases, however, are so cut and dried; this area of law is rife with shades of gray.
In NICE Sys., Inc. v. Becquer (D. Minn. Nov. 2017), a Minnesota federal district court judge declined to dismiss claims brought by a software marketing company against its former sales employee who, while employed in Minnesota by Plaintiff at a salary of $140,000 a year, secretly took a second job with a California company paying $300,000 a year (salary plus incentives). When questioned about these actions, the employee lied about this second job, and was fired when the first employer learned the truth. In the resulting lawsuit, the former employer sought damages based on breach of contract, breach of duty of loyalty and fraud.
In its order, the court denied the employee’s summary judgment motion seeking dismissal of all three counts. Whether or not the employee was prohibited by contract from accepting other employment on the side (a disputed fact question that required a trial), the court ruled that the duty of loyalty was theoretically broader. In other words, a jury could conclude that any employee, regardless of a work rule prohibiting moonlighting, could be found to violate a duty of loyalty simply by virtue of taking another job on the side.
A critical factor oddly not addressed in the reported case decision was whether the second employer was in any sense a competitor with the first. One must conclude not, based on an absence of discussion. (Were it otherwise, the plaintiff almost certainly would have cross-moved for summary judgment in its favor). Another critical factor is whether the plaintiff would be able to establish at trial that its employee’s taking a second full-time job diminished in any way his productivity and effectiveness. Again, it would be difficult to decide in the abstract. The defendant, in addition to showing extreme poor judgment, may have had super-human abilities and limited sleep requirements. At the end of the day, to recover at trial (as opposed to making an example of the hapless defendant and causing him to incur extensive legal fees), the plaintiff will have to prove to a jury that the moonlighting activities actually caused quantifiable damages. Under long established Minnesota law, speculative damages are not recoverable.
Left unanswered by this decision is whether taking a job with Company B while on the payroll of Company A, outside of a contractual prohibition on the same, implicates duty of loyalty concerns ipso facto. Would it matter if the second job was part time, as opposed to full time? What if the second job was weekends only? As is often the case in this somewhat murky area of law, the answer will likely be, “it depends…”