Competition Without a Noncompete

If, as an employee, you develop client relationships and bring new clients to your employer’s business, but the employer does not make you sign a non-compete agreement, are you free to leave the employer’s business and take those clients with you?  Not necessarily.

First, if you obtain, or even create, confidential information of employer and use it to compete with the employer while you are still an employee, that could be a breach of the fiduciary duty of loyalty an employee owes to the employer.  “Unless otherwise agreed, an agent [employee] is subject to a duty not to compete with the principal concerning the subject matter of his agency.”  Kieburtz & Assocs. v. Rehn, 68 Wn. App. 260, 267, 842 P.2d 985 (1992) (quoting Restatement (Second) of Agency § 393 (1958)).  “During the period of his or her employment, an employee is not ‘entitled’ . . . to act in direct competition with his or her employer’s business.”  Id. at 265 (quoting Restatement (Second) Agency § 393 cmt. e (1958)).  “Before the termination of the agency [i.e. employment] . . . , [the employee] cannot properly use confidential information peculiar to his employer’s business and acquired therein.”  Restatement (Second) of Agency § 393 cmt. e (1958)).  The employer could sue you for tortious interference with contract or business expectancy, and for breach of the fiduciary duty of loyalty.

Second, after you leave the employer’s employ, you still have a duty not to use the employer’s confidential information in competition with the employer.  “Unless otherwise agreed, after the termination of the agency, the agent . . . has a duty to the principal not to use or disclose to third persons, on his own account or on account of others, in competition with the principal or to his injury, trade secrets, written lists of names, or other similar confidential matters given to him only for the principal’s use or acquired by the agent in violation of duty.”  Restatement (Second) of Agency § 396 (1958).  In Washington, the rule is the same whether the employee takes a written list, or simply uses client information that he remembers.  See Ed Nowogroski Ins., Inc. v. Rucker, 137 Wn.2d 427, 443, 449, 971 P.2d 936 (1999).  The employer again could sue you for tortious interference with contract or business expectancy.

The employer could also have a cause of action for unjust enrichment.  This is a very broad cause of action, allowing recovery if “the circumstances make it unjust for the [defendant] to retain the benefit [conferred by the plaintiff] without payment.”  E.g., Young v. Young, 164 Wn.2d 477, 484-5, 191 P.3d 1258 (2008).  The cause of action applies even if there is no non-compete agreement: “Unjust enrichment is the method of recovery for the value of the benefit retained absent any contractual relationship because notions of fairness and justice require it.”  Id. at 484 (emphasis added).

The employer could have other causes of action as well.  For example, if the confidential information meets certain requirements, the employer could sue you for misappropriation of trade secrets.  To be sure, it is easier for the employer to enforce a non-compete agreement than any of these claims.  And the employer has to prove the information was confidential for any of these claims to succeed.  Nevertheless, just because you do not have a noncompete agreement with the employer does not mean you are free to use the employer’s client information against him.