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The Limits of Fiduciary Relationships

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Whenever an employee acts out of self-interest or for self-profit, the question may arise as to whether or not he or she is in breach of his or her fiduciary duty. The answer to that question in the State of Texas depends largely on the type of employment that’s involved, the employee’s tenure with the firm, and his or her actions. The Texas courts have decided that it would be impossible to establish specific criteria to identify a fiduciary relationship—preferring instead a “fact-specific” approach to analyzing the existence of a fiduciary duty in different industries and situations.

Most breach of fiduciary business cases involve an employee who attempts to steal clients or commerce from his or her employer while still working for the business. For example, if a sales representative for a Houston, TX pharmaceutical firm attempts to direct clients to a Dallas competitor—perhaps because he will begin working there—chances are that the Texas courts would find that the sales rep’s fiduciary duty was breached.

Some of the factors that need to be considered when corporate attorneys examine a breach of fiduciary duty case are:

  • The extent of the employee’s breach
  • How much of the employer’s business the employee secreted away
  • The resulting damage to the employer’s business

Texas law recognizes two types of fiduciary relationships:

Formal Fiduciary Relationships – These are actually identified in the law, such as attorney-client, business partners, joint venture partners, et cetera.

Informal Fiduciary Relationships – These are relationships that arise from a moral, social, or domestic relationship.

Because of the subjective nature of the legal definitions regarding fiduciary relationships and duties, even experienced Texas business litigation attorneys are often trepidatious about suing errant employees in the Texas courts. Any breach of fiduciary duty case should begin with a careful examination of the relationship between the employee and employer, an investigation into the actions that caused the breach, and an assessment of the short and long term damages.

A Texas business litigator may be able to seek an injunction through the courts to mitigate the damage that is being caused by the employee or former employee. Employers in most industries can bolster their resistance against this type of employee misconduct by having their lawyers draft non-compete covenants. These contracts can prevent employees from stealing clients to go to another business in the area or to open up their own.

Whether you’ve been accused of breach of fiduciary duty, or you are the manager of a Texas company who has suffered damage from the actions of a culpable employee, you should involve the services of a TX business litigation attorney as early as possible.

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