Employees in Texas typically owe a duty of loyalty or a fiduciary duty to their employers. That includes a duty not to divert corporate opportunities or engage in activities that benefit employees at the expense of their employers.
Recently, the Fifth Circuit upheld an award of $11,000,000 against an oilfield supervisor after a jury found that he breached his fiduciary duty to the employer.
The company alleged that the oilfield supervisor hired his friend’s company to drill out over 200 wells over the course of several years. To funnel work to his buddy, the oilfield supervisor told his friend the bids that other contractors submitted, thus allowing him to underbid them.
After winning the contract, the friend’s company deliberately took longer than necessary to conduct drill out operations, and its employees dropped tools down the well, brought faulty equipment to the site, and allowed other equipment to freeze, all of which resulted in lengthy delays, which allowed the contractor to bill the company more.
Additionally, the discovery showed that the oilfield supervisor personally received over $700,000 in payments and a private jet from his friend. During this time, the supervisor was being compensated by him employer to the tune of $3,000,000 and $10,000,000 in restricted stock units.
Employees’ Fiduciary Duties in Texas
Even those employees who have no written employment agreements with their employers owe what is called a fiduciary duty or a duty of loyalty to the companies they work for. This means that while they work for their company, they cannot:
- appropriate the company’s trade secrets
- solicit away their employer’s customers
- solicit the departure of other employees
- carry away confidential information
- divert company opportunities
Examples of Breaches of Fiduciary Duties
In the past, Texas courts have found the following conduct constituted a breach of duty of loyalty or breach of a fiduciary duty:
- employee set up and was operating a business competing with his employer while still working for the employer;
- employee was selling employer’s confidential information to third parties while working for the employer;
- employee took kickbacks from a vendor;
- employee solicited other employees to leave their employment while the employee was still working for the employer;
- employee delayed an execution of a profitable contract because employee was leaving and was going to execute the contract at his new place of employment.
What Should Employees Consider When Leaving Their Employment
Employees’ duty of loyalty to their employers ends on their last day of employment. Thus, there is a difference between what employees can legally do before they resign and after they resign. Some restrictions – such as not taking or using confidential information – remain in place after the employment terminates. Other restrictions, may end after the resignation.
When an employee is leaving to start a competing business, the preparation to compete may or may not constitute a breach of fiduciary duty depending on what exactly the employees does. It is best to consult with a lawyer when planning to start a competing business while still working for an employer to avoid getting in hot water with the former employer.
Leiza Dolghih is the founder of Dolghih Law Group PLLC. She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.