When does competition result in a breach of fiduciary duty?

As an opinion by the El Paso Court of Appeals demonstrates, even apart from a written contract, certain employees owe a fiduciary duty to their employers.

In that case, a number of employees worked for home health care agency A, which provided home health care, hospice care and primary care to its patients.  During their employment, the employees had access to Agency A’s confidential business information and medical records. While still employed at Agency A, the employees formed Agency B, another home health care agency.   Near the time that the employees resigned from their jobs at Agency A, the employees discharged about 30 patients from Agency A.  

Agency A sued the former employees for breach of fiduciary duty and breach of contract, and also asserted other claims.  The trial court granted summary judgment on all of Agency A’s claims.  Agency A appealed.

Regarding its claim for breach of fiduciary duty, Agency A specifically pointed to testimony establishing that while still employed by Agency A, one of the employees had requested that a doctor transfer a patient from Agency A to Agency B. The record indicated that the employee had access to confidential patient files while employed by Agency A, that she discharged several patients prior to her resignation, and that several of those patients were discharged to Agency B shortly before or after the employee’s resignation.  The record also demonstrated that the employee knew she was going to resign before she discharged some of the patients, the employee requested a transfer order switching a patient’s care from Agency A to Agency B, and that the employee was part owner of Agency B.   The court held that there was sufficient evidence to create a fact issue regarding whether the employee breached a fiduciary duty owed to Agency A.

As this opinion demonstrates, an employee may prepare to go into competition with his or her employer and can actively take steps to do so while employed.  However, a fiduciary relationship forbids an employee from using confidential information in a manner adverse to the employer.