Employers often require employees to enter into non-compete agreements as a condition of employment. Typically, these non-compete agreements regulate employees’ activities after their employment terminates but may also establish limits on the employees’ competitive activities during their employment. Nevertheless, there are unwritten “common law” rules that already regulate employees’ competitive activities while employed. In short, employees have a fiduciary duty to not compete with their employer regardless of any agreement that may have been signed in that regard. “[A]n employee … owes his or her employer … a fiduciary duty,” which includes a duty of loyalty. Sec. Title Agency, Inc. v. Pope, 219 Ariz. 480, 492, 200 P.3d 977, 989 (App. 2008) (quoting McCallister Co. v. Kastella, 170 Ariz. 455, 457–58, 825 P.2d 980, 982–83 (App.1992). Consistent with the fiduciary duty of loyalty, an employee may not, absent agreement to the contrary, statute or other authority, compete with his or her employer concerning the subject matter of the employment. Id. (citing Restatement (Second) of Agency (“Restatement of Agency”) § 393 (1958)).  In that regard, the court in Taser Int’l, Inc. v. Ward, 224 Ariz. 389, 394, 231 P.3d 921, 926 (App. 2010), order vacated (Dec. 9, 2010), stated:

[I]t is too plain to need discussion that an agent [employee] is under the duty to act with entire good faith and loyalty for the furtherance of the interests of his principal [employer] in all matters concerning or affecting the subject of his agency, and if he fails to do so[,] he is responsible to his principal for any loss resulting therefrom.

Id. at 394, 231 P.3d at 926 (quoting Thomas v. Newcomb, 26 Ariz. 47, 51, 221 P. 226, 228 (1923).  Thus, employees violate their fiduciary duties to their employers if they do work “on the side,” that is the same work they do for their employers and could have resulted in revenue to their employers.

Patrick J. Van Zanen
pvanzanen@mclawfirm.com
480-994-2000

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