Who is a fiduciary under Texas law?

As a recent opinion by the Fifth Circuit indicates, an employment agreement that provides that all work product created by the employee becomes the property of the employer may give rise to a fiduciary relationship between the employee and employer.

In that opinion, a company entered into an employment agreement with a chemist. The contract provided that “[a]ny formulae, applications, or concepts created, designed or contemplated by [employee] during the course of his employment with [employer] will be the property of [employer].” The contract also provided that “ . . . [employee] will devote 100% of his profession time to the affairs of [employer] and [employer’s wholly owned subsidiary].” The employee agreed to serve as one of the directors of the employer, and the parties agreed that the employee would ultimately own 25% of the outstanding shares. The employee also agreed to serve as president of the subsidiary. Soon after the employment agreement was executed, a partnership was formed to market any technology developed by the chemist. The partnership entered into negotiations with a paint company for the paint company to purchase the right to sell compounds developed by the chemist; however, these negotiations never resulted in an agreement.

The employer, the partnership, and another related entity sued the chemist, alleging breach of fiduciary duty and other claims. The plaintiffs alleged that the chemist conducted secret negotiations with the paint company and that the chemist had stopped working for the employer and refused to turn over test results and work product, all while receiving payment as an employee.

One of the issues on appeal was whether a fiduciary relationship existed between the chemist and the employer. The court noted that even when there is not a written contract, a fiduciary relationship exists between employee and employer such that the employee may not use trade secrets or confidential or proprietary information in a manner adverse to the employer. In this case, there was a written employment agreement that provided that all work product created by the employer would be the property of the employer. Therefore, the court held that the employment agreement prohibited the chemist from using confidential information against the employer, which gave rise to a fiduciary relationship.

The next issue was whether the chemist breached his fiduciary duty to the employer. The plaintiffs argued that the chemist tried to negotiate an employment agreement with the paint company while the chemist was under the original employment agreement, and that because of their negotiations, the paint company refused to agree to a joint venture with the plaintiffs and instead agreed to hire the chemist at a fraction of the price. Plaintiffs even produced evidence in the form of an email where the chemist asked the paint company to pay his legal fees so he could breach his agreement with his employer. In the response to the email, a representative of the paint company said they would pay his legal fees. Other evidence indicated that the chemist had stopped working for the employer eight months before he officially resigned.

Based on that evidence, the court held that the trial court erred in granting summary judgment and finding that there was no genuine issue of material fact regarding whether the chemist had breached his fiduciary duties.

As this opinion indicates, whether a fiduciary duty exists can be a complicated and fact-intensive inquiry. A fiduciary relationship can arise from an employment relationship. Also, conduct which appears disloyal to one’s current employer may result in a breach of fiduciary duty. 

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