Employers Generally Do Not Owe Fiduciary Duties To Employees

Originally published by David Fowler Johnson.

In Espinosa v. Aaron’s Rents, Inc., a former employee sued his former employer for defamation and other torts related to the defendant reporting the plaintiff to the police for alleged theft. No. 01-14-00843-CV, 2016 Tex. App. LEXIS 423 (Tex. App.—Houston [1st Dist.] January 14, 2016, no pet. history). One of the claims that the plaintiff asserted was that the defendant breached a fiduciary duty owed to the plaintiff, who used to be a manager for the defendant. The trial court granted the defendant a summary judgment on all of the plaintiff’s claims. The court of appeals affirmed. Regarding the breach of fiduciary duty claim, the court held that the defendant did not owe the plaintiff a fiduciary duty as a matter of law. The court cited to a prior opinion: Beverick v. Koch Power, Inc., 186 SW.3d 145,153 (Tex. App.—Houston [1st Dist.] 1997, pet. denied). The Beverick court held that “Texas does not recognize a fiduciary duty or a duty of good faith and fair dealing owed by an employer to an employee.” Id. (citing City of Midland v. O’Bryant, 18 S.W.3d 209, 216 (Tex. 2000) (holding that there is no duty of good faith and fair dealing in the employment context)).

Interesting Note: Even though courts have held that employers do not owe fiduciary duties to employees, courts have also held that employees may owe limited fiduciary duties to employers. The term “fiduciary” generally applies “to any person who occupies a position of peculiar confidence towards another,” refers to “integrity and fidelity,” and contemplates “fair dealing and good faith.” Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 571, 160 S.W.2d 509, 512 (1942). In addressing the scope of a fiduciary duty in the context of an agency relationship, the Texas Supreme Court has observed:

The agreement to act on behalf of the principal causes the agent to be a fiduciary, that is, a person having a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with his undertaking. Among the agent’s fiduciary duties to the principal is the duty to account for profits arising out of the employment, the duty not to act as, or on account of, an adverse party without the principal’s consent, the duty not to compete with the principal on his own account or for another in matters relating to the subject matter of the agency, and the duty to deal fairly with the principal in all transactions between them.

Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193, 200 (Tex. 2002) (quoting Restatement (Second) Of Agency § 13, cmt. a (1958)). “[W]hen a fiduciary relationship of agency exists between employee and employer, the employee has a duty to act primarily for the benefit of the employer in matters connected with his agency.” Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 510 (Tex. App.—Houston [1st Dist.] 2003, no pet.). The Texas Supreme Court has recognized that fiduciary employees owe duties of loyalty to their employers and, if a fiduciary employee “takes any gift, gratuity, or benefit in violation of his duty, or acquires any interest adverse to his principal without a full disclosure, it is a betrayal of his trust and a breach of confidence, and he must account to his principal for all he has received.” Kinzbach Tool Co., 138 Tex. 565, 160 S.W.2d at 514. But an employer’s right to demand and receive loyalty from a fiduciary employee must be tempered by society’s interest in encouraging competition. See Johnson, 73 S.W.3d at 201. Thus, in general, an at-will employee may plan to compete with his employer and take certain steps toward that goal without disclosing his plans to the employer, but he may not “appropriate his employer’s trade secrets,” “solicit his employer’s customers while still working for his employer,” “carry away certain information, such as lists of customers,” or “act for his future interests at the expense of his employer by using the employer’s funds or employees for personal gain or by a course of conduct designed to hurt the employer.” Id. at 202; see also Abetter, 113 S.W.3d at 510.

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