Breach of Fiduciary Duty in Texas

texas-breach-fiduciary-duty Employees owe various duties to their employers, including a general duty of loyalty. This duty requires employees to act primarily for the benefit of their employer in all matters connected with their employment. Failure to do so may constitute a breach of fiduciary duty, or breach of the duty of loyalty.

Examples of Employee Fiduciary Duty in Texas

  • An employee must deal openly with her employer and fully disclose information about matters affecting the company’s business.
  • An employee cannot exploit for her own benefit an asset or opportunity that should belong to the employer. That is, the employee may not divert opportunities from the employer to the employee’s own benefit.
  • If an employee, while employed by his employer, uses his position to gain a business opportunity belonging to the employer, such conduct constitutes an actionable wrong. Indeed, an employer may succeed in a claim for diversion of a business opportunity without demonstrating that it would have availed itself of the business opportunity had the employee not diverted it.
  • While still employed, an employee may not actively compete with his employer without violating the duty of loyalty.

However, an at-will employee may plan to compete with his employer, and may take active steps to do so while still employed. The employee has no general duty to disclose his plans and may secretly join with other employees in the endeavor without violating any duty to the employer. Despite the employee’s general right to plan to compete, the employee cannot (while still employed) solicit his employer’s customers in preparation to complete with the employer.

Further, at least one Texas court has suggested that an employee’s preparation to compete may constitute a breach of the employee’s duty of loyalty if the preparation is “significant”–e.g., where a supervisor or manager acts as a “corporate pied piper” and lures all of his employer’s personnel away, thus destroying the business.

An employee may also violate the duty of loyalty to his employer by accepting a payment or benefit during the course of employment without reporting it to the employer.

An employee is required to give her employer a full accounting of anything of value received while on the job, including tips, gratuities, and gifts. Unreported receipt of a payment or benefit is a potential violation of the employee’s duty of loyalty, even if the employer suffers no economic harm as a result of the payment.

This general duty to report is intended to ensure that the employee’s loyalty to the employer is not diverted.

Explore articles on the topic of Breach of Fiduciary Duty in Texas:

Texas LLC Law – Breach of Fiduciary Duty

August 3, 2015 / By Robert Wood
Articles // Breach of Fiduciary Duty in Texas

Over 70% of all businesses in the United States are sole proprietorships.  A sole proprietorship is an unincorporated business that is owned and operated by a single individual.  As a sole proprietor, you are entitled to 100% of the profits.  However, you are also 100% personally responsible for all debts, losses, and liabilities. Many people…

Read more

Usurpation of Corporate Opportunity in Texas

December 18, 2012 / By Robert Wood
Articles // Breach of Fiduciary Duty in Texas

 What constitutes “usurpation of corporate opportunity”?  There is no clear answer.   However, an opinion by the Texarkana Court of Appeals is instructive.     During merger negotiations, the company’s Chief Financial Officer (who was also a director and stockholder in the company) and another director/stockholder agreed that the CFO would waive an important provision…

Read more

Who is a fiduciary under Texas law?

November 26, 2012 / By Robert Wood
Articles // Breach of Fiduciary Duty in Texas

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…

Read more

Texas Breach of Fiduciary Duty Law: Injunctive Relief Available for Breach of Fiduciary Duty

December 5, 2006 / By Robert Wood
Articles // Breach of Fiduciary Duty in Texas

To get an injunction restraining former employees from competing, an employer needs a valid non-compete agreement or a misappropriation of trade secrets claim, right?  Wrong.  A breach of fiduciary duty (duty of loyalty) can also warrant injunctive relief. In a case decided several years ago, two employees worked for a company (“the Corporation”) that was…

Read more

Texas Breach of Fiduciary Damages: Can Recover Damages Even Though Not Actually Harmed

October 21, 2006 / By Robert Wood
Articles // Breach of Fiduciary Duty in Texas

An employee may be liable for breach of fiduciary duty to his employer—even if his employer suffers no actual damages as a result of the offending conduct.  So learned an employee in a recent case. In that case, the employee, a Project Manager for a general construction contractor, was responsible for locating potential subcontractors for…

Read more