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Community Counseling Service, Inc. v. Reilly | 313 F.2d 239 (1963)

Generally, employees have a duty of loyalty to act in their employer’s best interests during the course of their employment. In the 1963 case Community Counseling Service, Incorporated versus Reilly, the Fourth Circuit considered whether an employee breached his duty of loyalty by agreeing to perform work for his employer’s customers after giving his notice of resignation.

Community Counseling Service, Incorporated, which we’ll call CCS, was a professional fundraising organization that mainly worked for Catholic parishes and institutions.

In 1957, CCS hired Robert Reilly as an associate director, where he worked on fundraising campaigns. Two years later, Reilly was transferred to the sales division, where he became a regional sales representative for the area between northern Maryland and Georgia. As a sales representative, Reilly’s job was to find organizations interested in starting fundraising campaigns, and to secure commitments from the organizations to have CCS run the campaign.

On January 4th, 1960, Reilly informed CCS that he intended to resign from his position. Further, Reilly stated that he thought he would go back to working for the federal government or into teaching, in which he had experience. Under his employment contract, Reilly was required to give thirty days’ notice, but CCS and Reilly agreed his last day of work would be January 26th.

During the intervening three weeks, Reilly spoke to three different religious organizations about fundraising campaigns. Reilly also obtained commitments from the three groups to have him personally run their fundraising campaigns after leaving CCS. Following his departure, Reilly conducted a campaign for all three organizations and was paid fees and commissions.

Subsequently, CCS sued Reilly in federal district court for breach of the duty of loyalty. In the action, CCS alleged that Reilly promoted his own competing interests during the course of employment and sought an accounting, or a court order requiring Reilly to produce financial documents or otherwise account for his profits. In response, Reilly counterclaimed, seeking the recovery of salary and commission payments that CCS withheld as an offset against its claim.

Following a bench trial, the court concluded that CCS failed to prove its breach of the duty of loyalty claim and found in Reilly’s favor. CCS appealed to the Fourth Circuit.

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