As discussed in a previous post, one of the primary reasons or considerations for an employer to assert a cause of action against an employee who has misappropriated trade secrets or confidential information entails the “Misappropriation of Trade Secrets.” To move the discussion forward, this post and Part V of the series is an overview of “Breach of Duty of Loyalty & Breach of Fiduciary Duty” as the second “Consideration for an Employer when Drafting a Complaint & Asserting a Cause of Action” in the same regard.
Breach of Duty of Loyalty & Breach of Fiduciary Duty
By way of backdrop, let us understand what we mean by “fiduciary duty.” In the context of employment in many states, a breach of fiduciary duty applies under the doctrine of the faithless servant, such as in the case of a breach of loyalty. For instance, in New York, while any actions inconsistent with one’s trust or agency are prohibited, the law requires all employees to comply with their unflinching duty of exercising the utmost loyalty and faith when performing their duties. This implies that before drafting complaints and asserting causes of action, employers should investigate how different types of causes of action involving a breach of such loyalty are characterized by courts in their states and within the employment context.
In that regard, such a breach is another important reason an employer may wish to assert a claim against an employee who has misappropriated a trade secret and/or breached a restrictive covenant. This happens especially since employees may behave in ways not in the employer’s best interests to benefit themselves, but end up hurting the employer. However, the viability of such a claim is highly influenced by whether the employee carried out the misconduct before leaving the employer. Let us take an example of an employee working for an employer dealing with a pharmaceutical company. While still working for this employer, the employee influences and induces this employer’s client to close business operations and leave for a competing employer, whom the employee later joins after resigning from the current employer/pharmaceutical company. In such a scenario, while the employer may bring a claim against the employee for violating the duty of loyalty or fiduciary duty, a court may hold that the employee is in violation of a restrictive covenant entered into between them and their former employer.
Under similar circumstances, the employee may also use improper means to gain access and obtain the former employer’s confidential information and/or trade secrets and then disclose them to the rival employer they left for. In such a scenario, the former employer may draft complaints and assert causes of action against such an employee for various misconduct that includes breaching restrictive contractual covenants, misappropriating trade secrets or confidential information, breaching the duty of loyalty, and/or breaching fiduciary duty.
Stay tuned for Part VI of this series, in which we shall move the discussion forward by hammering on “Breach of Contract” as the third consideration for an employer to draft and assert a cause of action for a trade secret misappropriation and/or a breach of a restrictive covenant/agreement.
In the meantime, stay tuned for more legal guidance, training, and education. In the interim, if there are any questions or comments, please let us know at the Contact Us page!
Always rising above the bar,
Isaac T.,
Legal Writer, Author, & Publisher.