California
The duty of loyalty arises not from a contract but from a relationship-here, the relationship of principal and agent. Agency is “the fiduciary relationship that arises when one person (a `principal’) manifests assent to another person (an `agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.” (Rest.3d, Agency, § 1.01.) Where such a relationship arises, the agent assumes “a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship.” (Id., § 8.01.)
While the creation of an agency relationship requires the assent of both parties, it does not require or depend on the law of contracts. “The consensual aspect of agency does not mean that an enforceable contract underlies or accompanies each relation of agency. Many agents act or promise to act gratuitously. While either acting as an agent or promising to do so creates an agency relation, neither the promise to act gratuitously nor an act in response to the principal’s request for gratuitous service creates an enforceable contract.” (Rest.3d, Agency, § 1.01, com. d, p. 21, italics added.)
Colorado
Section 387 of the Restatement (Second) of Agency provides that “[u]nless otherwise agreed, an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency.” Rest. (2d) Agency § 387 (1957). Other courts have applied the Restatement’s agency principles to define an employee’s duty of loyalty to his employer.[10] See, e.g., AGA Aktiebolag v. ABA Optical Corp., 441 F.Supp. 747, 754 (E.D. N.Y.1977) (employee owes fiduciary duty to employer and is prohibited from acting in any manner inconsistent with the agency during his employment; employee is bound at all times during employment to exercise the utmost good faith and loyalty in the performance of his duties); Las Luminarias of New Mexico Council of the Blind v. Isengard, 92 N.M. 297, 587 P.2d 444, 449 (App.1978) (employment relationship is one of trust and confidence; employee has duty to use best efforts on behalf of employer); see also Bancroft-Whitney Co. v. Glen, 64 Cal.2d 327, 49 Cal.Rptr. 825, 839, 411 P.2d 921, 935 (1966) (mere preparations to compete before termination of employment are not sufficient to constitute breach of duty of loyalty); New World Fashions, Inc. v. Lieberman, 429 So.2d 1276, 1277 (Fla.App. 1983) (employee may not compete with employer’s business prior to termination of employment relationship); Insurance Field Services, Inc. v. White & White Inspection & Audit Service, Inc., 384 So.2d 303, 308 (Fla.App.1980) (during course of employment relationship common-law duty prevents employee from engaging in disloyal acts in anticipation of future competition with employer); Maryland Metals, Inc. v. Metzner, 282 Md. 31, 382 A.2d 564, 568 (1978) (duty of employee to act solely for the benefit of employer in all matters within the scope of employment); Chelsea Industries, Inc. v. Gaffney, 389 Mass. 1, 449 N.E.2d 320, 326 (1983) (employee occupying position of trust and confidence is bound to act for employer’s benefit in all matters within scope of his employment). Underlying the duty of loyalty arising out of the employment relationship is the policy consideration that commercial competition must be conducted through honesty and fair dealing. “Fairness dictates that an employee not be permitted to exploit the trust of his employer so as to obtain an unfair advantage in competing with the employer in a matter concerning the latter’s business.” Maryland Metals, 382 A.2d at 568.
Thus, one facet of the duty of loyalty is an agent’s “duty not to compete with 493*493 the principal concerning the subject matter of his agency.” Rest. (2d) Agency § 393. A limiting consideration in delineating the scope of an agent’s duty not to compete is society’s interest in fostering free and vigorous economic competition. In attempting to accommodate the competing policy considerations of honesty and fair dealing on the one hand and free and vigorous economic competition on the other, courts have recognized “a privilege in favor of employees which enables them to prepare or make arrangements to compete with their employers prior to leaving the employ of their prospective rivals without fear of incurring liability for breach of their fiduciary duty of loyalty.” Maryland Metals, 382 A.2d at 569. Previous decisions have acknowledged that “the line separating mere preparation from active competition may be difficult to discern in some cases.” Id., 382 A.2d at 569 n. 3. Thus, “[i]t is the nature of [the employee’s] preparations which is significant” in determining whether a breach has occurred. Bancroft-Whitney Co. v. Glen, 49 Cal.Rptr. at 839, 411 P.2d at 935.
Given the employee’s duty of loyalty to and duty not to compete with his employer and the employee’s corresponding privilege to make preparations to compete after termination of his employment, the issue here is whether Mulei’s pre-termination meetings with Jet’s customers and his co-employees to discuss ACT’s future operations constituted violations of his duty of loyalty or whether these meetings were merely legally permissible preparations to compete.