Riley

This run of the mill Fair Labor Standards Act case quickly became the unusual case of a claimed breach of the duty of *1085 loyalty owed by employees to their employer under state law, when the employees set up a competing business. The district court recognized that employees owe a duty of loyalty under Hawaii law to refrain from competing with their employer, and the court ordered the employees, Randell A. Riley and Lee T. Kunimitsu, to disgorge their profits to the employer, Eckard Brandes, Inc. (“EBI”). We affirm because the employer’s claim represents a classic violation of the duty of loyalty as recognized by Section 393 of the Restatement (Second) of Agency.

I. Facts and Procedural History

Appellee EBI is in the business of repairing and maintaining sewer pipes and other structures that convey sewage, debris, and rainwater. EBI employed Riley as a superintendent and Kunimitsu as a laborer. While still employed by EBI, Riley and Kunimitsu formed their own partnership, Kamaaina Pumping, and competed against EBI for a County of Hawaii project. Kamaaina Pumping submitted the lowest bid and the county awarded it the contract. EBI then learned that Riley and Kunimitsu were the…