Monday, January 27, 2014

Subdividing "Loyalty"

New ImageSince I've been critical of some of the evolving Restatement on Employment Law, it seems only fair to heap some praise upon the project when I see improvement.  And, in my view, section 8.01, the Employee Duty of Loyalty has considerably improved from earlier versions.  The reporters are to be commended for their responsiveness to suggestions raised during earlier discussions at the ALI.

The major improvements are twofold.

First, earlier versions imposed a duty of loyalty on all employees. What exactly that meant was contested, but the present version (Council Draft No. 11, Dec. 2013), is narrower. It would provide two flavors.  One is that owed by "employees in a position of trust and confidence";  these individuals owe "a fiduciary duty of loyalty."  The other "depending on the nature of the employment position" is a "contractual duty of loyalty." §8.01(a). 

While the current formulation could be critiqued, I come to throw bouquets not brickbats, and the bottom line is that the current version can no longer be read to impose on all employees fiduciary-like duties. Indeed, the sharp distinction between positions of trust and confidence and those "depending on the nature of the employment condition" will necessarily focus the attention of courts following the new Restatement on what, exactly, the law should expect of the particular employee. The resultant uncertainty is problematic but at least we've avoided the overinclusion of the first efforts.

Not insignificantly, comment a suggests that the "faithless servant" remedies (upon which I've expounded at length) are limited to those breaching a fiduciary duty while those breaching only a contractual duty are subject to  only contract remedies.  It also suggests that fiduciary duties are not disclaimable by contract while contractual duties are more malleable. 

But (OK, here's a small brickbat) Illustration 2 throws some doubt on the distinction between the two flavors of duty. It imagines E, a line worker for a manufacturer X who, by no stretch of the imagination, is a fiduciary but who stumbles across his employer's business plan, helpfully labeled "Trade Secret." According to the Illustration, E "became a fiduciary responsible for maintaining the secrecy of X's trade secret when it came into his possession." It's not that I think that liability shouldn't attach in the circumstances, but it does seem to make the notion of "fiduciary" broader than the blackletter would suggest. 

The second major improvement of this draft is replacing protection of "confidential information" with "trade secrets."  §8.01(b).  This change is less dramatic since earlier drafts seemed to equate the two, but the use of the potentially broader "confidential information"  risked an unintended consequences of expanding protection beyond what trade secret law would protect.

Like an earlier version, current §8.01(c) stresses that any duty of loyalty "must be interpreted in a manner consitent with" other employee rights, such as those under the public policy tort, and, more generally with "any privilege or obligation to cooperate with professional or government authorities."  See also §8.03(b) (duty of loyalty not breached if "the employee acts under a legal duty, legal protection, or other permission by law in making disclosure or use.") This explicitly recognizes the innate tension between the Restatement's encouragement of whistleblowing and its protection of confidences.  It's probably the best that can be done at the blackletter level of generality.

CAS

 

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