By Tara Hoke
Situation
A California firm specializing in engineering and management services for public works agencies wins a large consulting contract with a northwestern city. After being awarded the contract, the firm transfers one of its employees, a civil engineer and ASCE member, to the city in question to serve as the director of the new project. The firm assists the engineer in financing a home in the city and gives him responsibility for establishing a satellite office of staff members who will carry out the contract. Consistent with these new responsibilities, the firm also appoints the engineer to its operations committee, an internal team of managers whose duties include review and feedback related to overall finances and business strategies, as well as employee salaries and benefits.
The city is pleased with the quality of services provided by the consulting firm's new office, and the project director develops a close working relationship with members of the city council and other city employees. On the basis of this favorable assessment, the city renews the firm's annual consulting contract without difficulty for a period of five years. At the end of the fifth year, however, the city advises the firm that a dispute over budget matters will make it impossible to renew the annual contract on schedule. Instead, the city asks the firm to continue rendering service without a formal payment arrangement until the budget is approved and a new contract can be offered.
Some two months into this "informal" arrangement, the project director abruptly announces his intention to leave the firm and establish his own practice, giving his employer only three weeks' notice of his departure. A few days after his departure, the firm receives a letter from the city manager expressing concerns about continuity of service and announcing that the city has decided to seek competing proposals for the management contract both from it and from the former director's new practice. While the California firm scrambles to prepare its response, the former director submits his proposal to take over the consulting contract, highlighting cost savings to this city as a result of the lower profit margin and overhead that would be charged by his new practice.
With respect to staffing, the former project director's proposal states his intention to offer employment to several current employees in his former firm's satellite office, noting that this will enable his firm to provide continuity of service. The proposal notes that he has also commissioned staffing support from another local firm "in the unlikely event that any of the existing staff does not wish to continue working for the city."
The city evaluates the proposals submitted by the former director's new firm and by his former employer and notes that it will save a significant amount of money by entering into a contract with the new firm. While the California firm is a more established entity with a greater reserve of engineering professionals, the city states its preference for the "local ties" and "greater flexibility" of a firm owned and operated by a city resident. Moreover, because the former director intends to offer employment to persons who are currently performing work for the city, the city will benefit from the fact that "the experience of the staff will be the same as exists now for both firms."
Ultimately, the city council finds that the new firm offers a better deal to the city. It directs the city manager to settle costs with the California-based firm for its months of unpaid work and to execute a contract with the new firm for the following year. The former director extends an offer of employment to several employees in his former office, and all of them accept the offer to continue to work for the city at the new firm.
The California firm files suit against its former employee, alleging breach of fiduciary duty, fraud, and unfair competition and seeking an injunction preventing the new firm from performing work on the city contract. Copies of the civil complaint are forwarded to ASCE's Committee on Professional Conduct (CPC).
Question
Did the engineer's actions violate ASCE's Code of Ethics?
Discussion
Of the various types of cases brought before the CPC, none are quite as complex as those involving fallouts between employees and employers. As stated in canon 4, "Engineers shall act in professional matters for each employer or client as faithful agents or trustees, and shall avoid conflicts of interest." However, there are no bright lines for determining the extent and duration of that obligation when one resigns.
One clear line that can be drawn is that a departing employee may not act against his or her employer's interests while still on the payroll. Many cases in which the CPC has found an employee in violation of canon 4 have involved situations in which the employee has actively solicited his or her employer's clients before the date of resignation (see "A Question of Ethics," ASCE News, December 2008) or has used company time and resources to create marketing materials and make other preparations for his or her new practice (see "A Question of Ethics, ASCE News, April 2009). This indeed is precisely the allegation made by the complainants in the current case.
The complainants alleged that the former director used the delay in contract negotiations as an opportunity to "steal" the lucrative contract from his employer. As they saw it, he advised city officials in advance of his intent to start his own practice and, on the basis of his close relationship with them, persuaded them to assist him in obtaining the city's management contract. Pointing to the close timing of the employee's departure and the city's request for proposals, the complainants argued that the employee offered to submit a competitive proposal prior to giving his three weeks' notice and that his short notice to the firm was in fact intended to put his employer at a disadvantage in preparing its own proposal. Finally, they alleged that the former director's confidence in claiming that other staff members would leave their current employment to join his firm suggested that he had discussed this issue with them before his departure.
The complainants also contended that the former director's position on the firm's operations committee had given him access to confidential information about the firm's finances, including information about overhead, company profit margins, and the salaries of his coworkers. They further alleged that he had used this information to craft a proposal that would undercut his employer's offer, thereby violating category (f) in the guidelines to practice for canon 4: "Engineers shall not use confidential information coming to them in the course of their assignments as a means of making personal profit if such action is adverse to the interests of their clients, employers, or the public."
In response to the allegations, the member flatly denied any scheme to subvert his employer's contractual relationship with the city. He claimed that his decision to leave the firm was unrelated to the city contract. In support of this, he recounted that although the firm's principals had made numerous promises of salary increases and other incentives based on the attainment of certain revenue goals, the firm had failed to honor the commitments when the targets were met. He also said that he had been offered an equity interest several months earlier as an inducement to stay with the firm but had decided to leave when it became clear that this would be yet another unfulfilled promise.
The member further contended that he had not solicited work from the city officials but rather had been approached by them. He was supported in this claim by the city manager, who stated that he and other city officials had discussed the idea of requesting proposals internally and that they had approached the project director only after his employment with the California firm had ended. Furthermore, all of the staff members who accepted the offer to leave the satellite office and work in the new practice denied having any advance knowledge of the project director's plans.
Although the complainants' version of events offered a compelling tale of circumstantial evidence, the CPC was ultimately unable in any way to corroborate the claim that the member had solicited work from his employer's clients before he left the firm. As the committee members saw it, the case against the member consisted merely of assertions that events "had to have happened" in such a way, but those assertions were flatly contradicted by the testimony of city officials and employees. With respect to the project director's access to the firm's financial information, the CPC members noted that engineers in private practice are generally well informed about engineering salaries, overhead costs, and similar expenditures. In their opinion, the nature of the information in this case did not merit protection as being confidential.
Although the CPC members viewed the member's actions as being on the "borderline" of professional ethics, they did not believe that the facts justified a finding that the member had violated the Code of Ethics. They therefore voted to dismiss the case.
The facts of this case are undoubtedly close to the ethical line, and the CPC's verdict is one with which reasonable minds can easily disagree. Does an engineer's ethical duty to an employer end immediately upon termination, or do certain obligations persist for a certain period? If a departing employee intends to leave his or her employer in a disadvantaged position, does it matter from an ethics perspective whether the employee takes action only after departing? At what point might a departing employee's use of an employer's private operational information represent an attempt to "compete unfairly," in violation of canon 5?
Whether you agree or disagree with the CPC on the member's culpability, it is easy to see that the member's choice to cut ties with his employer in such a manner was a choice of questionable wisdom. While the CPC case file does not include the final result of the civil suit, the number and extent of court filings and depositions suggest that the litigation between the parties was long and expensive. As a matter of both ethical compliance and business judgment, it is important for any departing employee to treat his or her employer fairly throughout the process, including giving proper notice; honoring duties of confidentiality, loyalty, and candor; and making a good faith effort to minimize the harm to the employer from the departure.
Tara Hoke is ASCE’s general counsel and a contributing editor to Civil Engineering.
© ASCE, ASCE News, January, 2015
