Community Counseling Service, Inc. v. Reilly

United States Court of Appeals for the Fourth Circuit · 1963 · Corporations

Corporationsemployee loyaltyagencydepositions as substantive evidenceduty of loyaltyfaithless servantemployee competitionpretermination solicitation

Facts

Reilly worked for CCS as a regional sales representative whose job was to solicit parishes to hire CCS for fundraising campaigns. Before his agreed resignation date of January 29, 1960, he stopped submitting required reports, told CCS he intended to resign, and according to testimony and his own deposition admissions, arranged to conduct campaigns himself for St. Ambrose, Our Lady of Mercy, and St. John the Evangelist. After leaving CCS, he in fact conducted those campaigns and received substantial fees. At trial, he tried to place at least one agreement after his employment ended, but in his pretrial deposition he had admitted making the St. Ambrose agreement between January 10 and January 29 and admitted it was possible he entered a firm agreement with St. John's before January 29.

Issue

Whether the district court erred in refusing to treat Reilly's deposition admissions as substantive evidence, and whether the evidence showed that before his employment ended Reilly breached his duty of loyalty by soliciting for himself business he was employed to solicit for CCS.

Rule

A party's pretrial deposition may be used by an adverse party for any purpose and is admissible as substantive evidence. Although a former employee may compete freely after termination absent a restrictive covenant or misuse of confidential information, until the employment relationship is severed an employee must prefer the employer's interests, may not solicit for himself future business his employment requires him to solicit for the employer, must decline to participate in customer-initiated negotiations for his own benefit, and must be candid with the employer by withholding no useful information.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lena Ortiz worked in Phoenix as a salaried sales representative for Desert Crest Outreach, a consulting firm that arranges capital campaigns for nonprofit schools. On June 1, she gave notice that her last day would be June 30; on June 20, while still employed to solicit schools for Desert Crest, she secured an agreement that she personally would run a July campaign for Saint Mark Academy after leaving.

If Desert Crest sues Lena for the fee she later earned from Saint Mark Academy, which result is most consistent with the governing rule?

Explanation. Until the employment relationship is finally severed, a sales employee must prefer the employer's interests and may not solicit for herself future business that her job requires her to solicit for the employer. It is irrelevant that performance began after termination; the later fee is the fruit of disloyal pretermination solicitation. (Derived from Community Counseling Service, Inc. v. Reilly (1963).)