California employers know the rule by heart: non-competition agreements are void in this state. Business and Professions Code section 16600 has been on the books for over a century, and the Legislature doubled down in 2024 with SB 699 and AB 1076, making it unlawful even to attempt to enforce a non-compete and requiring employers to send notices to employees who had signed them. The conventional wisdom that follows is that when a competitor raids your workforce — or when your star branch manager walks out the door with your team and your customers — there is nothing you can do about it.
Readers of this blog know that the conventional wisdom is wrong. As I wrote last June in “Noncompetition Agreements Remain Unenforceable in California — But Employers Still Have Tools to Protect Company Assets”, the end of the non-compete did not leave California employers defenseless: the Labor Code’s duty of loyalty (sections 2860 and 2863), interference claims, and other statutory and common law remedies remain available to protect company assets. A new published Court of Appeal decision now shows just how much force those tools carry.
In Guild Mortgage Company LLC v. CrossCountry Mortgage LLC (4th Dist., Div. One, May 27, 2026, D085036/D085273), the court made clear that while California protects employee mobility after the employment ends, employees owe their employer an undivided duty of loyalty while they are still employed — and managers entrusted with running the business may owe full fiduciary duties on top of that. A competitor that helps employees breach those duties can be liable for aiding and abetting the breach. Here are five takeaways from the decision for this Friday’s Five.
1. The facts: a branch “gutted” from the inside
Guild and CrossCountry (CCM) are rival nationwide residential mortgage lenders. According to Guild’s complaint, over an 18-month period CCM induced and conspired with several of Guild’s branch employees — including the branch manager, a senior loan officer, and the branch operations manager — to gut the branch by recruiting their Guild colleagues to come work for CCM, diverting Guild’s customers to CCM, and converting Guild’s pipeline of active loan applications to CCM. Critically, all of this allegedly occurred while those employees were still employed, and being paid, by Guild. The conspirators also allegedly accessed Guild’s computer systems without authorization and copied confidential customer financial information, loan-level data, and employee compensation information.
The result was a mass resignation of virtually all of the dozens of employees at the branch. Guild first arbitrated against the three ringleaders and won — the arbitrator ordered the branch manager alone to pay over $10.6 million. Guild then sued CCM. The trial court sustained CCM’s demurrers and dismissed the entire case, concluding the employees owed Guild no actionable tort duty and that the remaining claims were displaced by California’s Uniform Trade Secrets Act (CUTSA). The Court of Appeal reversed across the board.
2. Every employee owes a duty of loyalty — not just executives
The centerpiece of the decision is its reaffirmation that “an employee, while employed, owes undivided loyalty to his employer.” The court grounded this in longstanding case law (Huong Que, Inc. v. Luu (2007); Fowler v. Varian Associates, Inc. (1987); Stokes v. Dole Nut Co. (1995)) and in Labor Code section 2863, which requires an employee who has business of his own similar to that entrusted to him by his employer to “always give the preference to the business of the employer.”
The court drew the line that matters for employers and employees alike: California law permits an employee to seek other employment and even to make some preparations to compete before resigning — but it “does not authorize an employee to transfer his loyalty to a competitor.” Recruiting your coworkers for a competitor, steering customers away, and moving the company’s active business pipeline to a rival while still drawing a paycheck crosses that line.
Significantly, the court declined to follow AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018), which some defendants have read to mean that an employee’s obligations to an employer sound only in contract, not tort. The Guild Mortgage court held that AMN never considered the contrary authority or Labor Code section 2863, and that disloyalty of this kind violates a social policy meriting tort remedies. This is a meaningful clarification: the duty of loyalty exists by operation of law, with tort remedies attached, whether or not the employee signed anything.
3. Fiduciary duty turns on function, not title
CCM argued that the branch manager could not owe fiduciary duties because he was “merely a branch manager,” not a corporate officer. The court rejected the argument, relying on GAB Business Services, Inc. v. Lindsey & Newsom Claim Services, Inc. (2000): an officer or manager who participates in the management of the company and exercises some discretionary authority is a fiduciary as a matter of law, while a purely “nominal” officer with no management authority is not. As GAB put it, the test “is not control; it is, instead, merely participation in management” — a low threshold.
The Guild Mortgage court distilled the principle into a sentence every employer should remember: what matters is not the title, “but rather the levels of trust, confidence, and discretion reposed by the employer.” Guild had entrusted its branch manager with stewardship of a sizable branch, supervision of dozens of employees, and safeguarding sensitive customer financial information. That was enough to plead a fiduciary relationship — and a competitor that knowingly assists a fiduciary’s betrayal can be liable for aiding and abetting the breach.
4. CUTSA does not swallow the case
The trial court had dismissed Guild’s interference claims and its claim under Penal Code section 502 (the Comprehensive Computer Data Access and Fraud Act, or CCDAFA) on the theory that CUTSA displaced them. The Court of Appeal disagreed on both fronts, and these holdings are important for any employer litigating employee-raiding cases.
First, on the interference claims, the court applied the “gravamen” test: courts look at the gist of the complaint to determine whether a claim is really just a repackaged trade secret claim. Here, the heart of Guild’s case was not the taking of confidential information — it was a coordinated scheme to sabotage a branch by appropriating its personnel, customers, and business pipeline while the key players were still on Guild’s payroll. The data theft was in aid of that scheme, not the scheme itself. Claims with that independent factual basis survive.
Second, in a holding of first impression in the published California case law, the court held that CUTSA does not displace civil claims under the CCDAFA at all. The two statutes target different social ills — CUTSA protects intellectual property; the CCDAFA protects the integrity of computer systems and data. The court found it implausible that the Legislature created (and later expanded) the section 502 civil remedy only to have it swallowed by CUTSA, enacted in the same month in 1984. For employers, this confirms that unauthorized access to company systems by departing employees supports a standalone statutory claim with its own remedies, regardless of whether the information taken qualifies as a trade secret.
5. Practical steps for employers — on both sides of the raid
For employers worried about being the target of a raid:
- Ensure your employment agreements with managers and key employees include enforceable provisions — duties of confidentiality, agreements not to solicit or divert clients and employees during employment, and acknowledgments of the trust and discretion placed in managerial roles (the Guild employees had exactly these provisions, and they supported the interference-with-contract claim).
- Maintain and enforce computer access policies, since unauthorized access and copying is what triggers CCDAFA liability.
- Monitor for the warning signs — unusual data downloads, coordinated resignations, customers suddenly moving to a competitor — and act quickly, because Guild’s prompt arbitration against the individual employees produced a substantial award before the case against the competitor was even decided.
For employers doing the hiring: this decision is equally a warning. Recruiting from a competitor is lawful — California protects employee mobility, and nothing in Guild Mortgage changes that. But there is a difference between hiring a competitor’s employees after they resign and enlisting a competitor’s current employees to recruit their colleagues, divert customers, and move business while still on the competitor’s payroll. Aiding and abetting a breach of the duty of loyalty or fiduciary duty exposes the new employer to the full range of tort remedies, including potential punitive damages. Train your recruiters and managers on where that line sits, and document that candidates are not bringing data, customer lists, or active business with them.
The lesson of Guild Mortgage is that California’s hostility to non-competes was never a license for disloyalty. The non-compete ban governs what employees may do after they leave; the duty of loyalty governs what they may do before they leave. Employers should make sure their agreements, policies, and litigation strategies account for both.
The post Poaching Employees, Customers, and Pipelines: Five Things California Employers Must Know After Guild Mortgage v. CrossCountry Mortgage appeared first on California Employment Law Report.
