In determining what is an impermissible “solicitation” by a current employee, the Illinois Appellate Court recently drew a distinction between officers and non-officers. See Xylem Dewatering Solutions, Inc., d/b/a Godwin Pumps of America et al. v. Szablewski et al., Case No. 5-14-0080 (Ill. App. 5th Dist. 2014).
In Xylem Dewatering Solutions, the defendants were accused by their former employer of wrongfully soliciting customers and suppliers on behalf of a competitive business that they were planning to launch. According to the Appellate Court’s decision, while still employed by their former employer, the defendants “asked customers and suppliers what they ‘thought’ about” the defendants’ formation of a new, competitive business. However, the defendants never “actually solicited any business or sold goods and services” to their then-employer’s customers on behalf of their new business until they had resigned and started the new business.
Although the defendants “agreed that those conversations were intended to persuade” customers and suppliers “to eventually do business with” their new business, the Appellate Court held that it was not an abuse of discretion for the trial court to conclude that these conversations were merely “preliminary actions” that did “not rise to the level of a breach of an ordinary employee’s duty of loyalty.” (emphasis added).
In reaching this conclusion, the Appellate Court drew a distinction between the duty of loyalty owed by ordinary employees (who are permitted “to plan and outfit a competing corporation so long as they do not commence competition”) and the “heightened duty of loyalty owed by corporate officers” (who are prohibited from “actively exploit[ing] their positions within a corporation for their own personal benefit” or “hinder[ing] the ability of a corporation to continue the business for which it was developed”).
Given the nature of these communications and their admitted purpose, their legality was not a foregone conclusion. Indeed, the Appellate Court may have reached a different conclusion if it was reviewing the trial court’s determination de novo, rather than merely reviewing it to determine if it was an abuse of discretion.
That being said, the Appellate Court’s decision makes clear that while all Illinois employees owe a duty of loyalty to their employer, corporate officers owe a heightened duty. Both they, and their employers and prospective employers, should be very aware of this distinction.
It should be noted that an employee’s duty of loyalty is governed by state common law. Accordingly, what passes muster in one state may not in another, and employers and employees should be aware of what is and is not permissible conduct in their own state.
- Member of the Firm