Dec. 8, 2009 - Even employees who do not make policy or are officers within a company may owe their employer a duty of loyalty, the Wisconsin Court of Appeals held today in Infocorp, LLC v. Hunt, 2007 AP2887.

A jury could find that in acting directly contrary to his employer's interest in the course of performing his specific duties, an employee breached a duty of loyalty to his employer, the court held.

Because resolution of the issue is fact sensitive, the court of appeals reversed the trial court's summary judgment and remanded the case for further proceedings.

Salesman with two employers

Christopher Hunt was a salesman for InfoCorp, an authorized reseller of technologically advanced chalkboards, projectors, and other audiovisual products purchased by schools. Hunt had developed a relationship with one of InfoCorp's customers, a Cooperative Educational Service Agency (CESA) district in southeastern Wisconsin.

When Hunt approached Tierney Brothers to find a job with that company, he helped arrange a meeting with CESA that CESA's manager of cooperative purchasing understood to be an effort to have Tierney Brothers become an authorized reseller to CESA.

Subsequently, Tierney Brothers hired Hunt on Sept. 18, 2006, but Hunt did not resign from InfoCorp until Oct. 2, 2006. In his last month at InfoCorp, Hunt sought to divert specific sales to his new employer. At about the time Hunt resigned, Tierney Brothers became an authorized reseller and CESA terminated InfoCorp's status as an authorized reseller in January 2007.

InfoCorp filed suit against Hunt and Tierney Brothers, but the trial court dismissed all of InfoCorp's claims except for its allegation that Hunt tortiously interfered with customer relationships prior to his resignation  The trial court also concluded that any potential damages InfoCorp might recover could not include damages related to the loss of the CESA relationship because there was insufficient evidence to create an issue of material fact concerning the loss of any business from the district.

In its appeal, InfoCorp challenged dismissal of its breach of duty of loyalty claim against Hunt,   a conspiracy claim against Hunt and Tierney Brothers, and a tortious interference with business relationships claim against Hunt and Tierney Brothers. InfoCorp also contested the limit on its damages.

Duty of loyalty

In an opinion authored by Judge Joan Kessler, the court of appeals disagreed with the trial court's determination that Wisconsin law imposes no duty of loyalty on Hunt who was not a company officer nor a policymaking employee.

The court of appeals noted that InfoCorp described Hunt as a "major accounts manager" who "possessed control over and knowledge of various key aspects of [InfoCorp's] business."

Citing Burbank Grease Services, LLC v. Sokolowski, 2006 WI 103, and other precedent, the court of appeals said that case law "effectively recognize[s] that there may be 'key employees' whose job responsibilities are of such a nature, in the context of the employer's business, that they may be used to harm the employer.

"If such employees do harm to their employer during the course of their employment, the employer has a common law remedy for breach of the employee's duty of loyalty," the court said.

Whether an employee has responsibilities that impose a duty of loyalty must be determined in the context of the employer's business and the specific role the employee plays in that business. Likewise, the status of a "key employee" is determined by the specific job responsibilities and the harm to the employer resulting from misuse of those responsibilities, the court said. These factual issues for a jury's determination made summary judgment inappropriate, the court said.

The court rejected the defendants' attempt to analogize this case to Modern Materials, Inc. v. Advanced Tooling Specialists, Inc., 206 Wis. 2d 435. In Modern Materials, the court of appeals had found no fiduciary duty owed by a nonofficer employee who merely explored the possibility of starting a business to compete with his employer and did no actual harm to his employer.

Although Hunt was not an officer, the court said, "The evidence here could support a finding that, unlike the employees in Modern Materials, Hunt was not merely exploring the possibility of another job while employed by [InfoCorp], but was using his position with [InfoCorp] to actively divert business from [InfoCorp] to his successor employer for his own benefit."

Other claims reinstated

After reversing the trial court on the issue of a duty of loyalty, the court of appeals determined that some of Hunt's acts were joined in by Tierney Brothers. Accordingly, the court held that summary judgment dismissing the conspiracy claim against Hunt and Tierney Brothers was incorrect.  Similarly, the court revived InfoCorp's claims of tortious interference with business relationships against Hunt and Tierney Brothers.

Damages

The court of appeals said that the trial court appeared to follow its legal conclusion that Hunt owed no duty of loyalty when it decided that Hunt did not tortiously cause InfoCorp to lose its status as an authorized seller.

But in line with its holding in this case, the court of appeals said the jury should balance InfoCorp's allegations against Tierney Brothers' contention that CESA would have terminated the relationship regardless of Hunt's actions. Consequently, the court of appeals reversed the summary judgment dismissing InfoCorp's damages claim related to its loss of CESA business.