In Texas, absent a valid noncompete, an at-will employee is generally free to compete with the former employer so long as the employee does not take or use the company’s confidential information or trade secrets. Notwithstanding this general rule, employees also have common law fiduciary duties that limit what activities they can engage in prior to resigning employment. The level of fiduciary duty owed to the company will depend on the duties and responsibilities of the employee and the position within the company. Employees may generally make preparations to compete while still employed by a company but cannot actively compete while still employed. What constitutes preparing to compete versus actively competing can often be a blurry line. A recent case from the El Paso Court of Appeals helps to bring the line into focus.
In Salas v. Total Air Services, LLC, Salas was employed as a crew manager who was responsible to supervising a crew, obtaining city required permits, getting inspections completed by the city, installing air-conditioning systems and occasionally delivering bids to potential customers. He was a nonmanagerial, salaried employee who was the highest paid employee in the company. During his employment with Total Air, Salas submitted an application for an HVAC license to the Texas Department of Licensing in the name of Iceland Refrigeration. He also filed assumed name certificates with the county clerk for Iceland. Importantly, while employed with Total Air, Salas installed several air conditioning systems for customers collecting tens of thousands of dollars. These jobs included several jobs that Total Air bid on, but was not awarded. Salas never disclosed to his employer that he intended to go into business for himself or that he was in business for himself while employed with Total Air.
Total Air sued Salas for breach of fiduciary duty and was awarded $50,000 in lost profits. On appeal, the El Paso Court of Appeals affirmed the judgment. In its opinion, the court set forth some of the fundamentals in evaluating breach of fiduciary duty claims filed against former employees that include that:
- At-will employees are free in Texas to leave and form competing businesses in the absence of a valid non-compete agreement;
- Employees have a fiduciary duty to act primarily for the benefit of the employee’s employer in matters connected with employment during the relationship which includes refraining from:
- Taking a company’s trade secrets or confidential information;
- Soliciting the former employer’s customers while working for his employer;
- Soliciting the departure of other employees while working for the employer; and
- Using the employer’s funds or employees for personal gain.
Applying these rules to the facts presented to the jury, the court easily affirmed the judgment that Salas violated his fiduciary duty to Total Air. What Salas teaches is that any employee considering leaving his or her present employer to start a competing business must take steps to avoid crossing the line from permissible preparations to compete to breaching a fiduciary duty owned to the employer.
You can read the entire opinion in Salas v. Total Air Services, LLC here.