Jet Courier Service, Inc. v. Mulei
29 Wage & Hour Cas. (BNA) 322, 771 P.2d 486, 13 Brief Times Rptr. 340 (1989)
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Rule of Law:
An employee breaches the duty of loyalty by actively soliciting the employer's customers or co-workers for a competing enterprise before the termination of their employment, regardless of when the new enterprise becomes operational.
Facts:
- Anthony Mulei was hired by Jet Courier Service, Inc. (Jet) as Vice President and General Manager of its Western Zone under an agreement that included a salary and a quarterly 10% net profit bonus.
- Jet consistently paid Mulei's salary but failed to compute or pay the quarterly bonuses as agreed upon in the contract.
- Dissatisfied with the non-payment of bonuses and other issues, Mulei began making plans to establish his own competing air courier company, American Check Transport, Inc. (ACT), while still employed by Jet.
- In early 1983, while still working for Jet, Mulei met with several of Jet's key bank customers to inform them of his impending departure and to discuss his new company, ACT.
- Mulei assured these customers that ACT could provide them with uninterrupted service and potentially reduce their costs in the future.
- During this same period, Mulei met with Jet's pilots and office staff, offering them better working conditions and benefits to persuade them to join ACT.
- ACT was incorporated on February 28, 1983, while Mulei was still an employee of Jet.
- On March 10, 1983, upon learning of Mulei's activities, Jet's president, Donald Wright, terminated Mulei's employment.
Procedural Posture:
- Anthony Mulei sued Jet Courier Service, Inc. in Denver District Court (trial court) for unpaid compensation and to declare a noncompetition covenant void.
- Jet counterclaimed against Mulei for breach of fiduciary duty and civil conspiracy, and also filed a separate suit against Mulei's new company, ACT, for civil conspiracy.
- The cases were consolidated, and following a bench trial, the trial court found in favor of Mulei, ruling that he did not violate his duty of loyalty and was entitled to unpaid compensation plus a statutory penalty.
- Jet, as appellant, appealed the trial court's judgment to the Colorado Court of Appeals.
- The Colorado Court of Appeals (intermediate appellate court) affirmed the trial court's judgment in favor of Mulei, the appellee.
- Jet petitioned the Colorado Supreme Court (highest court) for a writ of certiorari to review the appellate court's decision, which was granted.
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Issue:
Does an employee breach the duty of loyalty to his employer by soliciting customers and co-workers to join a new competing enterprise while still employed, even if the new enterprise does not become operational until after the employee's termination?
Opinions:
Majority - Justice Lohr
Yes, an employee can breach their duty of loyalty by actively soliciting customers and co-workers before termination. The lower courts applied an unduly narrow legal standard by focusing on when the new company began competing. An employee's duty of loyalty, derived from agency principles, requires them to act solely for the benefit of their employer in all matters connected with the agency. While an employee is privileged to make logistical preparations to compete after leaving, this privilege does not extend to active solicitation of customers or co-workers for a rival business before employment ends. Soliciting co-workers can be a breach regardless of whether their employment contracts are terminable at will, as the duty of loyalty imposes a higher standard than the tort of interference with contractual relations. Furthermore, Jet's prior breach of the employment contract by failing to pay bonuses did not excuse Mulei's duty of loyalty; Mulei's option was to renounce his agency relationship, which he did not do.
Concurring - Justice Mullarkey
Yes, an employee acting as an agent breaches their duty of loyalty by soliciting customers or co-workers pre-termination. This concurrence emphasizes that the high standard of the duty of loyalty is based on an agency relationship, and the test might differ for a non-agent employee. It also elaborates on Colorado's Wage Claim Act, arguing that an employer's failure to make required periodic payments (like Mulei's earlier, unpaid bonuses) cannot be excused by a later claim of employee disloyalty. Therefore, Jet would have no "good faith legal justification" for withholding bonus payments that were due long before Mulei's disloyal acts began.
Analysis:
This case establishes a clear precedent in Colorado defining the boundaries of an employee's duty of loyalty. It distinguishes permissible 'preparations to compete' from impermissible 'solicitation,' holding that an employee cannot actively recruit customers or co-workers for a new venture while still employed. The decision broadens the scope of the duty of loyalty beyond mere tortious interference with contract, creating a higher fiduciary-like standard for employees, particularly those in management or agency roles. This ruling significantly impacts employment law by limiting the actions departing employees can take, forcing them to wait until after their employment is terminated to begin any form of active solicitation.
