As an employer, how do you defend against a breach of Duty of Loyalty claim under the Defend Trade Secrets Act (DTSA) and the Uniform Trade Secrets Act (UTSA)? Under the law of employment, employees are obligated to act in the best interest of their employers and/or the businesses of these employers. This is known as a “fiduciary duty.” Notably, when asserting the breach of fiduciary duty claim, the employer should allege that the employee’s action(s) benefitted a competitor or harmed the employer’s business despite holding a fiduciary obligation to act in the employer’s or its business’s best interests.
To continue our discussion, we have hammered, in this blog and Part XIV of the series, on the “Breach of Duty of Loyalty Claims,” which is part of the common law tort claims brought under the UTSA and DTSA.
Breach of Duty of Loyalty Claims under the DTSA and/or UTSA
A breach of duty of loyalty occurs when an employee (such as a manager or top-level employee) utilizes their employer’s business to further their personal interests. Usually, employees are free to prepare and plan to compete against their current employers before parting ways with their employers and/or terminating their employment, as long as no non-compete agreement exists. However, an employer may find it necessary to bring a claim for breach of the duty of loyalty if, leading to the actual realm of aiding a competitor or actual competition, an employee acts in a manner that goes beyond mere preparation or planning, such as misusing and/or misappropriating an employer’s trade secrets and/or confidential information. This implies that an employer should, before making a breach of the duty of loyalty claim, be certain that the employee used the employer’s trade secret(s) against a non-compete agreement while still employed or engaged in competitive activity, as opposed to merely preparing and planning to compete.
Furthermore, the scope of the employee’s duty of loyalty to the employer and their position and level of employment with the employer should be factored in before a breach of the duty of loyalty claim is brought. Usually, officer employees of the employer are often held to a greater fiduciary duty than non-officers, although the duty of loyalty is generally applicable to all-level employees irrespective of salary, class, or position, and even in the absence of a written confidentiality or non-compete agreement.
Additionally, the employer should factor in the possibility that such a claim for breach of the duty of loyalty would be dismissed by a court in its jurisdiction as confusingly similar to a breach of a restrictive covenant claim.
Further, after the breach occurs and a claim for the same has been made against the employee, the employer should consider what kind of relief to request. For starters, the employee should consider seeking injunctive relief (a TRO), as discussed in our blog post “Tips for Seeking Injunctive Relief (Temporary Restraining Orders),” or a Preliminary Injunction, as discussed in our blog post “Tips for Seeking Injunctive Relief (Preliminary Injunctions),” or both. Additionally, after convincing the court that, indeed, the employee breached their duty of loyalty, the employer may also recover disgorgement from the compensation of the employee or money damages, even without being required to show evidence that, following the breach of duty of loyalty, economic loss was incurred.
In Part XV of this series and our blog post titled “Tortious Interference Claims under the DTSA & UTSA,” we will move the discussion forward by hammering on the “Tortious Interference” and the circumstances under which it could be sought to protect an employer’s trade secrets and/or confidential information from misappropriation.
Until then, stay tuned for more education, training, and legal guidance. In the interim, reach out to us with questions or comments via the Contact Us page on our website!
Always rising above the bar,
Isaac T.,
Legal Writer, Author, & Publisher.