The relationship between an employee and their employer is one of trust and loyalty. An employee is generally expected to act in good faith and put the interests of their employer ahead of their own, while an employer provides a livelihood for the employee and invests in their professional development. But what happens when an employee has the opportunity to divert business away from their employer and towards themselves or a competitor?
This is where the duty not to divert business opportunities comes into play in the State of New York. What is the duty not to divert business opportunities? The duty not to divert business opportunities is a legal principle that requires employees to refrain from taking advantage of business opportunities that belong to their employer and, instead, to bring such opportunities to the attention of their employer. In doing so, employees are fulfilling their duty of loyalty and preserving the trust that underlies the employer-employee relationship.
It is important to note that the Second Circuit Court of Appeals has held that the duty not to divert business opportunities can—under certain circumstances—apply not only during employment, but also after an employee leaves her job.[1] Other duties, like refraining from using information obtained during an employee’s former employment or soliciting a former employer’s customers using information that was taken from the former employer, may also continue after employment.[2]
This duty is particularly relevant in today's rapidly changing business environment, where opportunities for personal gain can often and quickly arise at the expense of an employer. The duty not to divert business opportunities serves as a reminder to employees that their loyalty must extend beyond the boundaries of their job description and into the realm of ethical behavior.
However, it is also important to note that the duty not to divert business opportunities is not absolute. In certain circumstances, an employee may be allowed to pursue a business opportunity that conflicts with their employer's interests, so long as they do so in a manner that is transparent and does not harm their employer. For example, an employee may seek to work for their former employer’s competitor or prepare to compete with their former employer after their employment relationship ends.
In conclusion, the duty not to divert business opportunities is a critical component of the employer-employee relationship in New York. By acting in good faith and preserving the trust that underlies this relationship, employees can fulfill their duty of loyalty and protect the interests of their employer. In doing so, they ensure that their own professional opportunities will continue to flourish in the long run. If you are an employer and you feel that one or more of your employees is in breach of their duty of loyalty, do not hesitate to contact our labor & employment attorneys by calling (212) 404-8644 or emailing info@kilegal.com.
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[1] Am. Fed. Grp., Ltd. v. Rothenberg, 136 F.3d 897, 914 (2d Cir. 1998) ("Such a continuing duty may, in appropriate circumstances, include the specific duty not to divert business in which a former employer has the requisite tangible expectancy,... and the duty not to exploit to the former employer's detriment specific information obtained during the employment that was either technically confidential or that was available to the fiduciary only because of the employment."(internal quotation and other citation omitted)).
[2] Id.