A mortgagor (Guild) appealed a judgment in favor of another mortgage company (CCM), arguing that the trial court erred in concluding that the three employees CCM poached from it owed a common law duty to their former employer when acting against its interest while still employed.
Background
During an 18-month period from January 2020, CCM conspired with several of Guild’s employees (including its branch manager) to gut the branch by:
recruiting their colleagues at Guild to come to work for CCM;
diverting Guild’s customers to CCM; and
converting Guild’s pipeline of active loan applications to CCM
all while those employees were still employed and being paid by Guild. The three employees engaged in the conduct despite having entered into employment agreements (of which CCM was or should have been aware) in which they’d promised not to solicit or divert Guild clients, potential clients, or employees and not to act as agents for a competitor.
The conspiracy led to a mass resignation of nearly all of Guild employees at that branch. CCM hired of many of those employees, including the three individuals who conspired with it.
After the exodus of employees, Guild initiated arbitration against the three employees. The arbitrator found for Guild and ordered the three employees to pay it lost profits, exemplary damages, restitution, attorneys’ fees and costs. However, while the arbitration was pending, Guild sued CCM, alleging claims for:
intentional interference with prospective economic advantage;
negligent interference with prospective economic advantage;
tortious interference with contract;
violation of the Comprehensive Computer Data Access and Fraud Act (CCDAFA); and
unfair competition pursuant to Business & Professions Code section 17200 et seq.
CCM responded by arguing that Guild hadn’t alleged facts sufficient to constitute a cause of action as to any of its claims. The trial court agreed and sustained the demurrer as to all five claims, but granted Guild leave to amend.
Guild filed a first amended complaint in which it asserted the same five claims as before, plus a claim for “aiding and abetting tort.” CCM responded by again filing a demurrer attacking all of the claims, and the trial court again agreed with CCM.
Specifically, the trial court concluded that the claim for aiding and abetting a tort was defective because Guild hadn’t alleged facts sufficient to support a conclusion that the three employees owed Guild an actionable duty the breach of which CCM could’ve aided and abetted.
As a result, the trial court sustained the demurrer as to each of the claims. Although it granted leave to amend, it did so only with respect to the claim for aiding and abetting tort and the UCL claim.
Guild filed a second amended complaint, realleging the claims it had been granted leave to amend. It supported them with the same allegations as before, but added allegations that hadn’t been included in either of the first two complaints. CCM responded by filing another demurrer. Again, the trial court sustained the demurrer as to the two remaining claims. But this time, it denied leave to amend. Guild appealed.
Does an Employee Owe a Duty of Loyalty to Its Employer?
Guild argued that the trial court erred in sustaining CCM’s demurrer on the claim for aiding and abetting a tort. This claim asserted that CCM gave substantial assistance or encouragement to Guild’s then-current employees in “a common plan or design to commit tortious acts against Guild” and that those tortious acts included, among other things, “breaches of fiduciary duty and the duty of loyalty.”
Judge Julia C. Kelety of the California Court of Appeals wrote that a duty of loyalty means that that “an employee, while employed, owes undivided loyalty to his employer.” Moreover, while California law does permit an employee to seek other employment and even to make some preparations to compete before resigning, it doesn’t authorize an employee to transfer his loyalty to a competitor. The duty of loyalty is breached, and the breach may give rise to a cause of action by the employer, when the employee takes action that’s against the employer’s best interests.
Crediting the factual allegations in the complaints as at this point in the proceedings as is required by rule, Judge Kelety found that Guild had entrusted to one of the employees at issue with the stewardship of a sizable branch and had placed a high level of trust and confidence in him to lead the employees in advancing the company’s best interests and safeguarding the confidentiality of its customers’ sensitive financial information.
Instead, he recruited his subordinates to leave Guild and to work for CCM, a rival, and to convert Guild’s customers and their loan applications to CCM, breaching not only the duty of loyalty they owed to the company, but also obligations the company owed to its clientele, and causing the mass resignation of virtually all of the Guild employees at the branch.
Based on this analysis, the court had no difficulty concluding that, if the allegations in the complaints could be proven, the three employees owed and breached a duty of loyalty to Guild, the branch manager owed and breached fiduciary duties to Guild; and CCM aided and abetted these breaches.
The Court of Appeals concluded that Guild alleged facts that, if proven, would support a conclusion that in fact its employees did owe Guild a duty of loyalty. As a consequence, at the demurrer stage of proceedings, the interference claims didn’t fail on the merits. The judgment was reversed. Guild Mortgage Co. LLC v. CrossCountry Mortgage LLC (California Court of Appeal, 4th Appellate District, 5/27/2026).
Takeaway
An employee, while employed, owes undivided loyalty to the employer.
California law does permit an employee to seek other employment and even to make some preparations to compete before resigning, it doesn’t authorize an employee to transfer his or her loyalty to a competitor.
The duty of loyalty is breached, and the breach may give rise to a cause of action by the employer when the employee takes action that’s antagonistic to the best interests of the employer.
For questions on this or other employment law matters, contact us at Eanet, PC.