BRIEF

Applicable law/principle

“Judge Benjamin Cardozo declares, that a director owes loyalty and allegiance to the corporation—a loyalty that is undivided and an allegiance that is influenced by no consideration other than the welfare of the corporation. Any adverse interest of a director will be subjected to a scrutiny rigid and uncompromising. He may not profit at the expense of his corporation and in conflict with its rights; he may not for personal gain divert unto himself the opportunities which in equity and fairness belong to his corporation.” (Mallor, 2013)

Mallor defines “the duty of utmost loyalty and fidelity to the corporation as duties: 1. not to self-deal 2. not to usurp a corporate opportunity 3. not to oppress minority shareholders 4. not to trade on inside information.” (Mallor, 2013)

Summary of the facts Jet Courier Service, Inc. (Jet) was a family-owned corporation established in 1981 and headed by Donald W. Wright. The offices of Jet were in Cincinnati, Ohio. Jet did not have an office in Denver, Colorado.

Anthony Mulei was working in Denver for another air courier service company in a management position. Mulei had worked in the air courier industry for many years and had numerous business connections in the banking industry in Denver and other cities.

Based on Mulei’s industry experience and connections, Wright felt Mulei would be able to expand Jet’s business. On February 18, 1981, Wright and Mulei orally agreed that Mulei would come to work for Jet and manage a new Denver office. Mulei would be the Vice President and General Manager of Jet’s Western Zone operations with his base being the Denver office. The verbal agreement also covered that Mulei would have autonomy in matters such as the solicitation of business, the operation of the business, and personnel policies for the Western Zone. The parties further agreed that Mulei would be paid $36,000 per year, plus a bonus of ten percent of the net profits of the Western Zone, to be calculated and paid every three months.

Late in 1981, Wright sent Mulei a written employment agreement containing the same terms they orally agreed to with the addition of a noncompetition covenant whereby Mulei would agree not to compete with Jet for two years after termination of this employment, without any geographic restrictions. Mulei signed the written agreement. At sometime prior to the commencement of the litigation, Wright also signed the agreement on behalf of Jet.

Mulei performed the services as agreed and significantly increased the business of Jet in the Western Zone as well as other areas of the United States. Jet regularly paid Mulei his monthly salary and paid him additional sums from time to time totaling $31,000 over the period of his employment. However, Jet never computed or paid the quarterly bonuses in the manner contemplated by the contract. Mulei requested payments and accountings but never received them.

Mulei became dissatisfied with his inability to resolve the bonus issue with Wright and believed Wright’s avoidance of the bonus payments was an intrusion of his management responsibilities to have autonomy in personnel and operational matters.

Toward the end of 1982, Mulei began looking for other work in the air courier field and sought legal advice concerning the validity of the noncompetition covenant in his employment contract. In the course of seeking other employment opportunities and while still employed by Jet, Mulei began to investigate setting up his own air courier company that would compete with Jet.

In January 1983, Mulei spoke to a Kansas air charter operator, John Towner, about going into business together. In February 1983, Mulei met again with Towner and two other Jet employees to discuss setting up this new business and obtaining customers.

On February 27, 1983, Mulei, while still employed by Jet and on Jet business in Phoenix, talked to two of Jet’s customer banks to inform them he would be leaving Jet in mid-March and to tell them he “would try to give them the same service.” Mulei further engaged in similar discussions with two bank customers of Jet in Dallas while still employed by Jet. Early in March 1983, Mulei met with representatives of three of Jet’s Denver customers, and discussed the new air courier company that Mulei and Towner were forming. Mulei told one of the Denver banks float manager that “if they wished to give them the business,” then they would be able to serve them without any break in service, and they would be able to take over their business and fully satisfy their air courier service needs. Mulei further told the customer “by minimizing expenses, he would be in a position, sometime later, to reduce cost.” Mulei had similar conversations with representatives of another Denver bank.

Prior to Mulei’s termination of employment by Jet on March 10, 1983, Mulei met with nine pilots who were flying for Jet to discuss his new company formation. Mulei also met with Jet’s Denver office staff and with its ground couriers to discuss potential future employment with his new company. Mulei offered Jet’s office staff, better working conditions, including health and dental insurance and part ownership of the company, if they were to join. Mulei did not inform Wright of any of these activities with respect to Jet customers, contractors or employees.

Mulei & Towner’s new company American Check Transport, Inc. (ACT) incorporated on February 28, 1983. Mulei was elected President at the first shareholders meeting.

When Wright first learned of Mulei’s organization of a competing enterprise, Wright fired Mulei on March 10, 1983. On this same day Mulei caused ACT to become operational to compete with Jet. Five Denver banks moved from Jet to ACT and three of the four Jet’s Denver office employees left Jet and joined ACT. All of Jet’s ground couriers in Denver immediately left Jet and joined ACT. All nine of Jet’s pilots in Denver either quit or were fired. Jet was able to maintain its Denver operations only through a rapid and massive transfer of resources, including chartered aircraft and ground couriers, from Jet’s other offices.

Holding of the court

The State Supreme Court reversed the judgment of the lower appellate court, which had affirmed the trial court’s judgment, and remanded to the lower court because respondent breached his duty of loyalty by actively soliciting his employer’s customers and by soliciting co-employees while still employed.
ANALYSIS

Rights and responsibilities of the petitioner

As the employer, Jet Courier Services, Inc. had the following rights and responsibilities:

Employer Rights * Right to have ownership of all work performed on behalf of the company * Right to employ and hire employees of company’s choice * Right to be treated with respect from employees * Right to expect employees to treat the company’s assets with respect * Right to not be defamed in the public eye * Right to maintain confidentiality of trade secrets and client lists

Employer Responsibilities * Responsibility to provide a safe and non-hostile work environment * Responsibility to communicate clearly and honestly to employees * Responsibility to define company policy and procedures * Responsibility to pay employees per employment agreement * Responsibility to treat employees with respect * Responsibility to not discriminate against any employees

Rights and responsibilities of the respondent

As the former employee of Jet Courier Service, Inc., Mulei had the following rights and responsibilities:

Employee Rights * Right to a safe and non-hostile work environment * Right to honest and clear communication from employer and co-workers * Right to perform the duties and tasks hired for * Right to be paid per employment agreement * Right to not be discriminated against

Employee Responsibilities * Responsibility to perform work duties per employment agreement * Responsibility to duty of loyalty and not self-deal, usurps corporate opportunities, oppress minority shareholders or trade on insider information. * Responsibility to treat business property with respect * Responsibility to treat employer and co-workers with respect * Responsibility to act in the best interest of the employer

Ethical principles to avoid litigation

“John Locke (1632–1704), an English political philosopher, is generally credited with developing the idea that human beings have a “natural right” to liberty and a “natural right” to private property. Locke argued that if there were no governments, human beings would find themselves in a state of nature. In this state of nature, each individual would be the political equal of all others and would be perfectly free of any constraints other than the law of nature—that is, the moral principles that God gave to humanity and that each individual can discover by the use of God-given reason.” (Velasquez, 2011)
When comparing the Jet Courier Service, Inc. v. Anthony Mulei case to Locke’s ethical view: The “State of Nature includes: • All persons are free and equal. • Each person owns his body and labor, and whatever he mixes his own labor into. • People’s enjoyment of life, liberty, and property are unsafe and insecure. • People agree to form a government to protect and preserve their right to life, liberty, and property.” (Velasquez, 2011)
Based on this ethical view both Donald Wright and Anthony Mulei are free and equal people. They each also own their body and labor, and whatever each of them mixes their own labor into. They both have the right to enjoy life, liberty and property. Society as a whole understands that limited government involvement is necessary to protect the individual’s rights of life, liberty and property. U. S. law has coined Locke’s theory by including it in the “Fifth Amendment of the U.S. Constitution that states “No person shall be . . . deprived of life, liberty, or property without due process of law; nor shall private property be taken for public use, without just compensation.” (Velasquez, 2011) “U.S. laws mirror Locke’s view regarding property and ownership, when a person expends labor and effort to create or improve a thing, that person “by nature” acquires property rights over that thing.” (Velasquez, 2011) For example, when Donald Wright of Jet Courier Service, Inc. hired Anthony Mulei as Vice President and General Manager of the Denver office, Mulei was given full autonomy regarding the solicitation of business, operation of the business and personnel policies for the Western Zone. The opportunity of ownership over the solicitation of business, operation of the business and personnel policies was given to Mulei. When Mulei mixed his labor and effort to create or improve the business operations and build the client base, which the facts state he performed the services as agreed and significantly increased the business of Jet in the Western Zone as well as other areas of the United States, Mulei “by nature” acquired property rights over the business operations and client base.
On behalf of Jet, Donald Wright had the right to hire employees of his choice and furthermore, protect the relationship with an employment agreement and noncompetition covenant. When Locke’s theory is applied to the employee agreement, “a person may, of course, agree to “sell” labor to an employer, and thereby agree that the employer will gain ownership of whatever the person creates. However, even such employee agreements assume that the employee has the right to “sell” labor, and this means that the employee must have been the original owner of the labor used to create the object.” (Velasquez, 2011) Although, a copy of the signed employment agreement that Wright and Mulei agreed to is not available as evidence to examine the specific details, but based on Locke’s theory Jet would have no claim for breach of contract because Jet would not be able to prove ownership of Mulei’s work product.
With regard to the noncompetition covenant whereby Mulei agreed not to compete with Jet for two years after termination of his employment, without any geographic restrictions would violate Mulei’s right to enjoyment of life. Under Locke’s state of nature Mulei has the right to enjoyment of life. Without the opportunity to work and earn a living the enjoyment of life is hindered. Mulei worked in the air courier industry for many years in the Denver area and has many connections in other cities as well. Therefore, it would be difficult for Mulei to change his career and find another industry or line of business to earn a living if he were to comply with the noncompetition covenant that he signed. In this instance it is then the government’s responsibility to intervene to halt Jet from infringing on Mulei’s enjoyment of life. This is a relevant example of how people’s enjoyment of life, liberty, and property are unsafe and insecure and the limited presence of government is necessary to protect these rights under Locke’s theory.
Based on this case, Mulei acted ethically in all areas of Locke’s theory of the state of nature. However, Locke’s theory does have some weaknesses first he assumes that “natural rights”, being liberty and property, are self-evident to all rational people who have an instinct knowledge that these rights exist for everyone. This statement is not a true because not all rational people have an understanding that “liberty and property take precedence over all other rights”. (Velasquez, 2011) In Locke’s theory he did not explain why, but rather assumed it was self-evident that when a person improves or changes an object and the object is now better than before, the object then becomes the property of that person who improved the object.
The second area of weakness in Locke’s theory is his belief that natural rights override all other rights. Liberty and property are negative rights, which can conflict with people’s positive rights. Therefore negative rights do not have a greater priority over positive rights. For example, even though Mulei was able to take the existing client list of Jet and strengthen and build better relationships with Jet’s existing client’s doesn’t necessarily give Mulei ownership of Jet’s client list property. In this example Mulei would be stealing Jet’s client list because Jet ultimately created the initial relationship with the client and initiated a service contract. Locke’s theory makes it difficult to differentiate if a person can truly assume another person’s property by just making an improvement to it. The property in this case, Jet’s client list, would continue to be owned by Jet because Jet has the primary responsibility to the client as defined by the service contract.
The third weakness in Locke’s theory is inequality, not every person in society has the mental or physical ability to produce labor to gain liberty and property rights. Since not all people are created equally in is naive to assume that all persons are equal.
The fourth area of weakness is “Locke’s assumption that human beings are atomistic Individuals with personal rights to liberty and property that flow from their individual nature independently of their relations to the larger community. Because these rights are assumed to be prior to and independent of the community, the community can make no claims on the property or freedom of the individual.” (Velasquez, 2011)
Critics challenge Locke’s claim, because humans are born with a dependence of care on other humans. This dependence of care is evident at all ages of the human life, even into adulthood. Adults are dependent on the caring cooperation of other adults in the workplace to complete the work product they produce. Our liberties are dependent on others as well. If it weren’t for our government and the soldier’s who have fought for our liberties and freedoms we wouldn’t have many of the liberties we have today.
Common sense business practices

The first business practice that I would have instituted at Jet Courier Service, Inc. would have been a better system to track and distribute the quarterly bonus payments to participating employees. This policy and procedure would have defined payment dates and examples of how payments are calculated. This policy would also address that payments would not be paid for quarters in which the employee terminated employment and there would be no pro-rated bonus for that quarter. This policy and procedure would be discussed and the defined payment dates, terms and examples would be discussed with each participating employee. Second, the best business practice regarding employment agreements and non-compete agreements is for each party to sign the agreement prior to the employee commencing work for the company. When this practice is followed and the roles/duties are clearly defined there is no question within the employer/employee relationship as to the rights and responsibilities of each party. Furthermore, it is important that the company have an attorney draft the employment and non-compete agreements to certify the language is correct and will hold up in a court of law, if required. Third, if I were in the position of Donald Wright I would pay closer attention to the sales and expenses of the Denver branch, especially since it was a newly opened branch of Jet. I would also implement quarterly sales meetings to review the business operations with my managers and set quarterly goals. This would allow open communication between the owner and manager as well as transparency. After this review the quarterly sales bonuses would be paid.
References

Mallor, J. P. (2013). Business Law: the ethical, global, and e-commerce environment (15th
Edition ed.). New York, NY: McGraw-Hill/Irwin.

Velasquez, M. G. (2011). Business Ethics: Concepts and Cases (7th Edition ed.). Pearson
Education, Inc.