This is the second of a three-part series on the duty of loyalty as a cause of action in employment law. In the previous installment, we discussed whether breach of the duty of loyalty conflicts with public policy in California. In this segment, we look at the ruling of Judge David Carter in the case of Mattel v MGA Entertainment.
Background to Mattel v. MGA Entertainment
The case concerned a claim by Mattel Inc. (Mattel), owner of the famous Barbie dolls, against MGA Entertainment Inc., (MGA), which sells the newer Bratz dolls, a competitor in the market. A former Mattel employee, Carter Bryant, was the creator of the Bratz doll. Among the various causes of actions invoked by Mattel in the lawsuit, it claimed that Bryant's contract assigned to Mattel all inventions conceived by Bryant "at any time during [his] employment" and that MGA had aided and abetted Mr. Bryant’s breach of his duty of loyalty. MGA filed a motion to dismiss this cause of action.
Judge Carter’s ruling
In granting MGA’s motion, Judge Carter ruled that claims of a breach of duty of loyalty are “phantom claims,” and that, based on a survey of past cases decided by the Supreme Court of California since 1850, no such general tort exists in California outside of cases of fiduciary duties. Furthermore, Judge Carter ruled that parties that attempt to use breach of a duty of loyalty in employment law cases are attempting to impose common law duties on contracting parties in order to benefit from the accompanying remedy of punitive damages that would not otherwise be available.
Conflict with California public policy and equity
In addition to his remarks about the lack of precedent for a duty of loyalty on non-fiduciary employees, Judge Carter also emphasized the extent to which such a notion would conflict with longstanding policy and law in California safeguarding employee mobility and freedom to work. Finally, Judge Carter pointed out that it would be an abuse of principles of equity to use a supposed duty of loyalty as a tool for an employer to claim ownership of the fruits of the ingenuity and resourcefulness of its employees.
In the final installment, we consider the alternative remedies and causes of action available to an employer against competing former employees, in the light of Judge Carter’s ruling.