Town & Country House & Homes Service, Inc. v. Evans
1963 Conn. LEXIS 202, 189 A.2d 390, 150 Conn. 314 (1963)
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Rule of Law:
An employee has a fiduciary duty not to compete with their employer during the term of employment, which is breached by soliciting the employer's customers for a future competing business before the employment relationship ends. A customer list may be a protectable trade secret if it was developed through significant business effort and is not readily ascertainable through public means.
Facts:
- The plaintiff operated a housecleaning business.
- The defendant was employed by the plaintiff from May 1957 to March 1960.
- The plaintiff asked the defendant to sign a non-compete covenant, but the defendant refused to do so.
- During the latter part of his employment, the defendant told a number of the plaintiff's customers that he was planning to start his own housecleaning business.
- While still employed by the plaintiff, the defendant solicited business from these customers for his planned future company.
- The defendant terminated his employment with the plaintiff and immediately started his own competing business.
- The defendant's new business served fifteen regular customers, some of whom were former customers of the plaintiff solicited before he left.
Procedural Posture:
- The plaintiff sued the defendant in a trial court, seeking an accounting of profits, an injunction, and damages.
- The trial court entered judgment for the defendant, concluding that he had a right to solicit his former employer's customers.
- The plaintiff appealed the trial court's judgment to the court issuing this opinion.
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Issue:
Does an employee, in the absence of a restrictive covenant, breach their fiduciary duty of loyalty by soliciting their employer's customers for a competing business before the termination of their employment?
Opinions:
Majority - Shea, J.
Yes. An employee breaches their fiduciary duty of loyalty by competing with their employer concerning the subject matter of the agency during the term of employment. The employer-employee relationship implies a duty of utmost good faith, loyalty, and honesty. While an employee is free to make arrangements to enter into a competing business upon termination of employment, they are not entitled to solicit customers for that rival business before their employment ends. This pre-termination solicitation constitutes a direct act of competition and a betrayal of the employer's trust. The court also held that the trial court erred in concluding the customer list was not a trade secret without supporting subordinate facts, and it remanded for a new trial on that issue, providing a six-factor test to determine if a customer list constitutes a trade secret.
Analysis:
This decision reinforces the common law duty of loyalty that exists independent of any written non-compete agreement. It establishes a clear distinction between permissible preparation to compete and impermissible active competition before employment ends, with pre-termination solicitation falling into the latter category. The case is also significant for adopting the Restatement's multi-factor test for determining whether a customer list qualifies as a trade secret, providing a clear analytical framework for future disputes. This strengthens an employer's ability to protect valuable customer relationships that were cultivated through significant investment of time and resources.
