When a competitor wants to break into your market, the cheapest way in is sometimes your own people–unless the competitor gets caught. Imagine your competitor convincing your employes–while they are still on your payroll–to walk out with the customers, the pipeline, and the confidential data.
Guild and CrossCountry are rival nationwide mortgage lenders. Guild alleges that over roughly eighteen months CrossCountry recruited and conspired with several employees at one of Guild’s branches to completely dismantle it from the inside. While still employed and paid by Guild, those employees allegedly
(1) recruited their colleagues to jump ship
(2) diverted Guild’s customers
(3) converted Guild’s pipeline of active loan applications to the competitor
(4) logged into Guild’s systems without authorization
(5) copied confidential information—borrower data, customer financials, and employee compensation details.
At the center was a branch manager Guild had trusted to run the office and safeguard sensitive information. The alleged result was a mass resignation that cost Guild essentially the entire branch.
The trial court dismissed the whole case at the pleading stage. Even after reading some of the decision, I asked myself how a Judge could reach this conclusion. I felt for the Guild’s attorney who had to state over and over again “Sometimes Judges do strange things. I do not know why the Judge bought CrossCountry’s claims after they essentially admitted they are bad people who are using the law to approve of their bad behavior. I do not know what else to say.”
The California Court of Appeal reversed across the board. Guild and its attorneys can breathe again in this case.
Loyalty is owed in tort, not just contract
The first question was whether the departing employees owed Guild a duty that CrossCountry could be liable for helping them breach. California law has long held that an employee owes the employer undivided loyalty while employed. An employee may look for another job and make ordinary preparations to compete before resigning. What an employee may not do is transfer that loyalty to a competitor while still drawing a paycheck. Acting against the employer’s interests during employment breaches the duty.
The trial court had read a 2018 decision to mean a disloyal-employee claim sounds only in contract. The Court of Appeal declined to follow that reading, explaining that it overlooked settled authority and a Labor Code provision requiring employees to prefer the employer’s business. Conduct of the kind alleged here, the court held, supports tort liability—which matters, because tort claims can reach the competitor who knowingly assisted the disloyalty.
The court also held the branch manager could be a fiduciary as a matter of law. Fiduciary status does not turn on a person’s title or on whether he had unilateral authority. What matters is the level of trust, confidence, and discretion the employer placed in him. A manager entrusted with running a branch can owe fiduciary duties even without the title of officer.
Trade-secret law does not swallow every claim
The trial court’s central rationale was that California’s Uniform Trade Secrets Act displaced Guild’s interference and computer-fraud claims. This is a familiar move. When a competitor is sued for poaching employees, customers, and data, it often argues the whole dispute is really just a trade-secret case, so every related claim must rise or fall with trade-secret law.
The Court of Appeal rejected that framing. Courts look to the gravamen—the gist—of the complaint to decide whether the trade-secret statute displaces a claim. Guild did not even plead trade-secret misappropriation, and the heart of its case was not the theft of particular files. It was a coordinated scheme to sabotage an entire branch from the inside, causing damage far beyond the loss of any document. On those allegations, the interference claims survived.
The court went further on Guild’s claim under California’s computer-fraud statute. No published California decision had resolved whether the trade-secret act displaces a civil computer-fraud claim, and federal courts had split. The Court of Appeal held it does not. The two statutes address different harms. The practical upshot: unauthorized access to your systems can support its own claim, whether or not the data taken qualifies as a trade secret.
Practical takeaways
The decision did not declare that Guild wins—only that it is entitled to prove its case. But the lessons for any business whose people, clients, and data are the business are immediate:
Keep loyalty and non-solicitation terms current. Your employees owe you loyalty while they work for you, and the most valuable employees—the ones who can take a team or a book of business—should have clear, current agreements reflecting that. Managers entrusted with real responsibility may owe fiduciary duties on top of whatever they signed.
Cut off system access immediately on departure. A separate computer-fraud claim depends on access being unauthorized. Prompt offboarding—disabling credentials the day someone resigns—both prevents harm and preserves the claim if harm occurs.
Do not let yourself be forced into a trade-secret box. If the real injury is the loss of a team, a customer base, or a pipeline, build the case around that conduct rather than a handful of copied files. Framing the gravamen correctly is what kept these claims alive.
Act fast when a pattern emerges. Coordinated departures rarely happen overnight. When a cluster of resignations starts to look orchestrated, preserve devices and access logs and move quickly—both to limit damage and to document who did what while still on your payroll.
Employees are free to leave and free to compete. What they cannot do is run a raid from inside your company and then hide behind trade-secret law to escape the consequences.
David Seidman is the principal and founder of Seidman Law Group, LLC. He serves as outside general counsel for companies, which requires him to consider a diverse range of corporate, dispute resolution and avoidance, contract drafting and negotiation, real estate, and other issues. He can be reached at david@seidmanlawgroup.com or 312-399-7390.
This blog post is not legal advice. Please consult an experienced attorney to assist with your legal issues.
Photo credit: Gemini
