Opinion ID: 1614964
Heading Depth: 1
Heading Rank: 4

Heading: Condon's Claimed Errors.

Text: The trial court submitted Condon's claim for breach of loyalty under a contract theory. The jury returned a verdict in favor of Condon, but the trial court granted Crick's motion for judgment notwithstanding the verdict. It concluded there was no independent claim for breach of loyalty against an employee, and notwithstanding, it was not supported by sufficient evidence. We recognize the existence of a common law duty of loyalty which is implied in employment relationships. Porth v. Iowa Dep't of Job Serv., 372 N.W.2d 269, 273-74 (Iowa 1985); Gossard Co. v. Crosby, 132 Iowa 155, 165, 109 N.W. 483, 487 (1906). This duty exists in at-will employment relationships, as well as contracts for a specific term. See Vigoro Indus., Inc. v. Crisp, 82 F.3d 785, 788 (8th Cir.1996). Although at-will employment does not bind the parties to performance, the duty of loyalty attaches once performance commences and continues until it is terminated. See Hunter v. Board of Trustees, 481 N.W.2d 510, 513 (Iowa 1992) (at-will employment relationship does not bind parties to performance). The duty of loyalty is not precisely defined, but has been applied on several occasions in the context of employee competition and self-dealing. See Nelson v. Agro Globe Eng'g, Inc., 578 N.W.2d 659, 662 (Iowa 1998) (covenant not to compete is implied in every employment relationship); Porth, 372 N.W.2d at 273-74 (employee who solicits fellow employee to leave employer for competitor breaches duty of loyalty); Gossard, 132 Iowa at 165, 109 N.W. at 487 (as long as employee remains in employer's service, an implied undertaking ordinarily exists that the employee will not engage in any other service or business to the detriment of the employer's interest); see also LaFontaine v. Developers & Builders, Inc., 261 Iowa 1177, 1187, 156 N.W.2d 651, 658 (1968) (servant must do nothing hostile to the master's interest). However, we have not previously considered whether the implied duty of loyalty gives rise to a separate cause of action for damages by an employer for breach of the duty by an employee. Ordinarily, breach of loyalty by an employee prompts the employer to discharge the employee from employment. Consequently, the issue is typically raised in response to claims by the employee based upon the discharge. Porth, 372 N.W.2d at 271-72 (raised in response to claim for unemployment benefits); LaFontaine, 261 Iowa at 1187, 156 N.W.2d at 658-59 (breach of employment contract without cause); see also Stokes v. Dole Nut Co., 41 Cal.App.4th 285, 48 Cal. Rptr.2d 673, 681 (1995). On the other hand, claims by employers against employees for damages resulting from unfair competition and self-dealing are often brought as claims for breach of fiduciary duty. See Kendall/Hunt Publ'g Co., 424 N.W.2d at 242-43; Restatement (Second) of Agency §§ 387-398 (1958). This is because a principal-agent relationship gives rise to a fiduciary duty of loyalty, and an employer-employee relationship can be closely associated with a principal-agent relationship. See Kurth v. VanHorn, 380 N.W.2d 693, 696 (Iowa 1986) (principal-agent relationship necessarily gives rise to a fiduciary duty); Iowa Power & Light Co. v. Abild Constr. Co., 259 Iowa 314, 335, 144 N.W.2d 303, 315 (1966) (Iowa law recognizes a very fine line between agent and employee); see also Kendall/Hunt Publ'g Co., 424 N.W.2d at 242-43 (employee found to have fiduciary duty); Restatement (Second) of Agency § 429 (1958) (agency's fiduciary duty of loyalty to principal is applicable to employment relationship). Thus, an employee can be held to the same fiduciary duties as an agent, subject to liability for breach of a fiduciary duty. On the other hand, an employee is not always an agent for the employer. Hass v. Kaster, 246 Iowa 48, 51, 66 N.W.2d 878, 880 (1954). A distinction is recognized between an agent and an employee, based largely on the degree and nature of service and control. Abild, 259 Iowa at 335, 144 N.W.2d at 315. An agent usually has greater authority to act for the principal, such as negotiating contracts, while an employee typically renders services at the direction of the employer. 27 Am.Jur.2d Employment Relationship § 3, at 555-56 (1996); see also Merritt v. Huber, 137 Iowa 135, 137, 114 N.W. 627, 627 (1908) (distinction between principal-agent and employer-employee is one of degree only). This heightened responsibility of an agent justifies the imposition of a fiduciary relationship. Likewise, employees who assume the same type of responsibility can become bound by a fiduciary duty. See Kurth, 380 N.W.2d at 696 (circumstances giving rise to fiduciary duty are diverse). Depending on the particular facts, some employees may be fiduciaries, while some may not. In this case, Condon did not attempt to establish Crick as a fiduciary and assert a separate claim against Crick for a breach of fiduciary duty. Instead, the claim was based upon a breach of loyalty. Some jurisdictions have refused to recognize a separate cause of action by an employer against an employee for breach of loyalty without an underlying fiduciary relationship between the employer and employee. See Beverly Hills Concepts, Inc. v. Schatz & Schatz, 247 Conn. 48, 717 A.2d 724, 729 (1998) (a breach of fiduciary duty implicates a duty of loyalty); Physician Specialists v. Wildmon, 238 Ga.App. 730, 521 S.E.2d 358 (1999) (cause of action against employee for breach of loyalty must be based upon a fiduciary duty). In these jurisdictions, a cause of action for breach of loyalty must be brought as a claim for breach of fiduciary duty. See Eaton Corp. v. Giere, 971 F.2d 136, 141 (8th Cir.1992); Schatz, 717 A.2d at 729; Physician Specialists, 521 S.E.2d at 362; Maryland Metals, Inc. v. Metzner, 282 Md. 31, 382 A.2d 564, 569-70 (1978); Chelsea Indus., Inc. v. Gaffney, 389 Mass. 1, 449 N.E.2d 320, 326 (1983). Other jurisdictions permit a separate claim for breach of loyalty, but recognize its close relationship to a breach of fiduciary duty. Food Lion, Inc. v. Capital Cities, 194 F.3d 505, 515-16 (4th Cir. 1999); Vigoro, 82 F.3d at 788; Universal Elec. Corp. v. Golden Shield Corp., 316 F.2d 568, 573 (1st Cir.1963); Stokes, 48 Cal.Rptr.2d at 681; Tech Plus, Inc. v. Ansel, Civ. A. 96-01668-B, 1999 WL 482329 (Mass. March 22, 1999); Dalton v. Camp, 519 S.E.2d 82, 89 (N.C.Ct.App.1999); Cameco, Inc. v. Gedicke, 157 N.J. 504, 724 A.2d 783, 789 (1999). Thus, the scope of the duty of loyalty will vary with the nature of the relationship. Cameco, 724 A.2d at 789. A higher duty of loyalty exists for employees who occupy a position of trust and confidence than those who occupy a low level task. Id.; see also Tech Plus, 1999 WL 482329 at ; Chelsea, 449 N.E.2d at 326. Moreover, the duty of loyalty is generally confined to instances of direct competition, misappropriation of profits, property, or business opportunities, trade secrets and other confidences, and deliberately performing acts for the benefit of one employer which are adverse to another employer. Food Lion, 194 F.3d at 516. Inconsequential or indirect assistance or competition that is indirect or minimal is actionable only if the employee renders substantial assistance to the competitor. Cameco, 724 A.2d at 789. Thus, even in those jurisdictions which recognize a cause of action for breach of loyalty, the action is limited in scope. A broad cause of action would give employers more protection than needed and could create an unfair advantage. It could also threaten an employee's bargaining power in the market. See Terry O'Neal, Employees Duty of Loyalty & Corporate Constituency Debate, 25 Conn.L.Rev. 681, 703 (1993). Nevertheless, it is unnecessary for us to determine in this case whether a separate cause of action exists for breach of loyalty, either in tort or contract. Although Condon submitted substantial evidence to support unfair competition, self-dealing, and the enticement of employees to leave Condon, the evidence failed to show Condon was damaged by these activities. Instead, Condon's claim for damages was supported by evidence that the profit margin at the dealership decreased during the last few months of Crick's employment and for a period of time after his termination because Crick had paid too much for cars purchased at auctions and accepted as trade-ins, and did not diligently perform his other responsibilities as sales manager. The damage was not based on Crick's competition with Condon, but his services performed for Condon. This activity falls outside the scope of any action for breach of loyalty. Therefore, the trial court properly concluded there was insufficient evidence to show the damages were a proximate cause of any breach of duty.
Our law imposes tort liability on a person who intentionally and improperly interferes with the performance of a contract between another and a third person. Financial Mktg. Serv., Inc. v. Hawkeye Bank & Trust, 588 N.W.2d 450, 458 (Iowa 1999); see also Restatement (Second) of Torts § 766 (1979). An essential element of the tort is that the interference be intentional and improper. Compiano v. Hawkeye Bank & Trust, 588 N.W.2d 462, 464 (Iowa 1999). However, when the contract at issue in a claim for intentional interference is terminable at will, we require substantial evidence that the defendant's predominate or sole motive of the interference was to damage the plaintiff. Id. We agree with the district court that there was insufficient evidence to establish any predominate or sole motive by Wisner's to damage Condon. Crick had a track record of moving from dealership to dealership, and even Condon hired Crick from a dealership in Kentucky. There was no substantial evidence to suggest a plan or motive by Wisner's at any level to cause financial harm to Condon, or undermine its business, by hiring Crick. The contact between Crick and Stamoulis may have been improper, but this evidence was insufficient to establish the necessary higher standard of proof for contracts terminable at will.