Nevada Supreme Court Rejects Claim that High-Level Manager Breached Non-Compete Agreement and Fiduciary Duty

Volume 2, Issue 5
May 23, 2003

In White Cap Industries v. Ruppert, No. 38034 (Nev. Apr. 28, 2003), the Nevada Supreme Court recently found that a high-level manager did not violate the terms of his non-competition agreement or breach his fiduciary duty owed to his employer when he failed to report another employee's statements about starting a competing business.

Richard Ruppert sold his supply company to White Cap Industries. The sales agreement contained a non-competition clause and provided that Ruppert stay on as White Cap's district sales manager. The local branch manager, Michael Harmon, decided to terminate his employment and form a competing supply business. Harmon told Ruppert of his intentions to form his own business, before terminating his employment. Ruppert never told White Cap what Harmon had told him. White Cap claimed this was a breach of the non-competition agreement because he assisted another employee to engage in prohibited activity. The Court held that "non-action" on the part of Ruppert did not result in a breach of the non-competition agreement. Furthermore, the Court found that Ruppert did not breach his fiduciary duty (a legal duty to act in and protect another's interest) to White Cap because Harmon's intent to form a competing business was not "relevant to the duties entrusted to Ruppert."

This case is quite disturbing for employers as it condones a manager's failure to report information that could be detrimental to his employer's business interests. It underscores the need for Nevada employers to revise company policies, such as conflict of interest policies, designed to protect the company's business interests and to modify employment and non-competition agreements to clearly set forth the fiduciary duties owed by employees to the company.

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