Texas Breach of Fiduciary Duty Law: Injunctive Relief Available for Breach of Fiduciary Duty
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 involved in the institutional detergents business. While still employed by the Corporation, the employees started their own detergent business, and they began competing with the Corporation (while still working for the Corporation). Their competition included converting some of the Corporation’s customers into customers of their own business.
Eventually, the Corporation terminated the employees, and it sought an injunction against them. The court, holding that the employees were “not entitled to benefit from such unlawful and disloyal conduct,” enjoined them from “contacting or calling on for the purposes of selling detergent products . . . any former customer of [the Corporation] whose account [the employees] obtained for [their] own competing business.”
The important holding in this case is, even without a valid (a) non-compete agreement or (b) trade secrets claim, a Texas court may enjoin an employee from benefiting from his breach of fiduciary duty. Thus, an employer should attempt to determine whether a departing employee was competing with the employer while still employed by the latter. If the employee was doing so, it may be possible to get an injunction to prevent the employee from continuing to benefit from the disloyalty, even in the absence of a non-compete agreement.
Gaal v. BASF Wyandotte Corp., 533 S.W.2d 152 (Tex. Civ. App.—Houston [14th Dist.] 1976, no writ.).