UNFAIR COMPETITION
In Texas, "unfair competition" constitutes the variety of claims that can be asserted to stop or remedy unlawful or unfair competition. These claims include:
• Breach of Non-Compete Agreement
• Tortious Interference with Contract
• Tortious Interference with Prospective Business Relations
• Misappropriation of Trade Secrets
• Breach of Fiduciary Duty
Non-Compete Agreements are discussed in more detail here.
Tortious Interference
Tortious interference with contract and tortious interference with prospective business relations are tort claims that can be asserted by an employer whose current or former employee is competing with the employer. In some cases, these claims can also be asserted against a company that hires the new employee.
Tortious Interference with Contract
For a tortious interference with contract claim to be viable, there must be: (a) a valid contract; (b) willful and intentional interference with the contract; (c) interference that proximately causes the injury to the plaintiff; and (d) actual damage or loss.
This claim typically arises in a couple of different situations. First, an employer might sue a current or former employee for interfering with the employer's contracts with its customers. This might occur, for example, if an employer had a written contract entitling it to do work for a customer for a certain period of time, and the employer's former employee convinced the customer to breach the contract and start allowing the former employee to do the work instead.
A tortious interference claim may also arise when a company sues one of its competitors for hiring one of its employees who is bound by a non-compete agreement. In this situation, the plaintiff contends that the hiring company is tortiously interfering with the non-compete agreement by hiring the plaintiff's former employee.
Tortious Interference with Prospective Business Relations
To make a viable tortious interference with prospective business relations claim, a plaintiff must prove: (a) a reasonable probability the plaintiff would have entered into a business relationship with a third person; (b) intentional interference with the relationship; (c) the defendant's conduct was independently tortious or unlawful; (d) the interference proximately caused the plaintiff's injury; and (e) the plaintiff suffered actual damage or loss. The plaintiff does not have to prove that the contract would have been made but for the interference. The plaintiff only must show that the formation of a contract was reasonably probable. These claims often arise with respect to prospective customers or employees.
Significantly, the plaintiff must show that the defendant's conduct was independently tortious or unlawful. This might be shown by demonstrating that the defendant, in interfering with the plaintiff's prospective business relations, used the plaintiff's trade secrets, or breached its fiduciary duty to plaintiff.
Misappropriation of Trade Secrets
Employers typically use non-compete and non-disclosure agreements to prevent their employees from using or disclosing their trade secrets. But even without such agreements, a Texas employer may be able to make a claim against a former employee for taking, using or disclosing the employer's trade secrets.
In Texas, a misappropriation of trade secrets claim consists of the following elements: (1) the existence of a trade secret; (2) a breach of a confidential relationship or improper discovery of the trade secret; and (3) use of the trade secret without authorization.
A trade secret is "any formula, pattern, device, or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it." Texas courts examine the following factors in determining whether information is entitled to trade secret protection: (1) the extent to which the information is known outside the employer's business; (2) the extent to which it is known by employees and others involved in the employer's business; (3) the measures taken by the employer to guard the secrecy of the information; (4) the value of the information to the employer and its competitors; (5) the amount of effort or money expended by the employer in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.
A frequently-litigated issue involves whether a customer list, or information about a customer, is a trade secret. There is no easy answer to this question, and the particular facts of each case must be examined. Texas cases routinely consider these factors when determining whether a customer list is a trade secret: (1) what steps, if any, an employer has taken to maintain the confidentiality of a customer list; (2) whether a departing employee acknowledges that the customer list is confidential; and (3) whether the content of the list is readily ascertainable. The last factor is often highly contested, as employees often contend that the identities of customers can be found in public sources, such as telephone books, industry journals, etc.
Although employers are entitled not to have their trade secrets misappropriated, former employees are allowed to use the general knowledge, skills, and experience acquired during employment to compete with a former employer.
Assuming a trade secret exists, the second element-breach of a confidential relationship or improper discovery of the trade secret-consists of a person either (1) discovering the secret by improper means or (2) after properly acquiring knowledge of the secret, breaching a confidence reposed in him.
If an employer proves that its trade secrets have been misappropriated, it may seek damages and injunctive relief. Obtaining injunctive relief requires proving that, absent the relief, irreparable harm will occur. However, courts have held that the threatened disclosure of trade secrets constitutes irreparable injury as a matter of law.
Breach of Fiduciary Duty
Employees owe to their employers a general duty of loyalty. This duty requires employees to act primarily for the benefit of their employer in all matters connected with their employment. If they fail to do so, they may breach their fiduciary duty.
For example, an employee must deal openly with her employer and fully disclose information about matters affecting the company's business. An employee cannot exploit for her own benefit an asset or opportunity that should belong to the employer. If an employee, while employed by his employer, uses his position to gain a business opportunity that should belong to the employer, such conduct is wrongful. In some cases, an employer may succeed in a claim for diversion of a business opportunity without demonstrating that it would actually have availed itself of the business opportunity had the employee not diverted it.
One of the most important issues in breach of fiduciary disputes involves the difference between preparing to compete and actually competing. While still employed, an employee may not actively compete with his employer without violating the duty of loyalty.
However, an at-will employee may plan to compete with his employer, and may take active steps to do so while still employed. In appropriate cases, planning to compete that a court might find lawful could include renting office space, buying office furniture and equipment, developing a business plan, etc. However, this arguably preparatory activity must be contrasted with telephoning the employer's clients while still employed by the employer, telling the clients that the employee is leaving and starting his own business, and asking the customer to come with him. Moreover, preparatory activity can cross the line, e.g., where a supervisor or manager lures all of his employer's personnel away, thus destroying the business.
An employee may also violate the duty of loyalty to his employer by accepting a payment or benefit during the course of employment without reporting it to the employer. An employee must give her employer a full accounting of anything of value received while on the job, including tips, gratuities, and gifts. Unreported receipt of a payment or benefit is a potential violation of the employee's duty of loyalty, even if the employer suffers no economic harm as a result of the payment.
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