## Facts

- Community Counselling Service, Inc. (CCS) employed Robert Benedict Reilly, first in operations and later as a regional sales representative covering Maryland through Georgia.
- Reilly’s sales role was to identify and solicit prospective clients for CCS’s fundraising services; CCS publicly held him out as its regional representative and compensated him by salary plus commissions.
- On January 4, 1960, Reilly gave notice of resignation effective January 26, 1960.
- While still employed during the notice period, Reilly contacted three CCS-type prospects—St. Ambrose Parish (Baltimore), Immaculate Conception Parish (Mechanicsville), and St. John the Evangelist Parish (Silver Spring).
- Before January 26, Reilly secured commitments from those organizations to hire him personally, after his departure, to conduct their fundraising campaigns rather than hiring CCS.
- After resigning, Reilly ran the three campaigns independently and received fees and commissions.
- CCS sued for an equitable accounting to recover profits from business Reilly obtained through disloyal competition while still employed; Reilly counterclaimed for withheld salary and commissions.
- Following a bench trial, the district court refused to treat Reilly’s deposition admissions as substantive evidence, found CCS failed to prove its claim, and entered judgment for Reilly on both CCS’s claim and his counterclaim.

## Issues

1. Whether a party’s pretrial deposition admissions are admissible as substantive evidence in a bench trial.
2. Whether an employee breaches the duty of loyalty by soliciting and securing commitments from the employer’s prospects for the employee’s competing venture during the employment relationship (including a notice period).
3. Whether the proper remedy for such disloyal competition is an accounting for the employee’s profits, with any amounts owed to the employee handled by setoff.

## Decision

- The Fourth Circuit reversed the district court.
- The court held the district court erred by refusing to consider Reilly’s deposition admissions as substantive evidence.
- Considering those admissions, the court concluded Reilly diverted CCS business opportunities while still employed and CCS was entitled to relief.
- The court remanded with directions to enter judgment for CCS and to conduct an accounting of Reilly’s profits from the three campaigns, subject to appropriate setoff for amounts legitimately owed to Reilly.

## Legal Principles

- An employee owes a duty of loyalty to act for the employer’s benefit in matters connected with the employment and may not, without disclosure and consent, engage in direct competition during the employment relationship.
- An employee may prepare to compete after leaving employment, but may not solicit the employer’s customers or prospects for the employee’s own competing business before termination.
- Where an employee uses the position and access obtained through employment to appropriate business opportunities that should have been pursued for the employer, equity may require disgorgement through an accounting of profits.
- Deposition admissions by a party may be used as substantive evidence and may establish key facts supporting liability.

## Conclusion

The court held that a sales employee who, before his resignation becomes effective, solicits and secures the employer’s prospects for his own post-employment competing work breaches the duty of loyalty, and the employer may obtain an accounting of the profits earned from the diverted business.


Community Counselling Serv., Inc. v. Reilly, 317 F.2d 239 (4th Cir. 1963)