Virginia Business Litigation Claims: Part 3 - Breach of Fiduciary Duty
The next installment in our six-part series on business litigation claims in Virginia is the claim for breach of fiduciary duty. Although there are several types of relationships that can give rise to a breach of fiduciary duty lawsuit, this post will focus on the claim in the context of the employer-employee relationship.
Over the past 15 years, the employer-employee relationship has changed dramatically. Long gone are the days when an employee would spend an entire career with the same employer. Instead, in this day and age of monster.com, employees are just one click away from their next employment opportunity.
As a result of the transient nature of today’s workforce, employers have turned to Virginia courts for redress. In addition to filing lawsuits for theft of trade secrets or an employee’s breach of a non-compete agreement, employers are increasingly pursuing claims against former employees for breach of fiduciary duty.
What is an employee’s fiduciary duty to an employer?
An employee has a general duty to perform his job faithfully and in furtherance of the employer’s business.
How is an employee’s fiduciary duty created?
Unlike other business litigation claims that are based on a statute or a contract, an action for breach of fiduciary duty arises from the relationship between an employer and an employee.
Although all employees (regardless of title, pay, or rank) have a general duty to refrain from any action that is adverse or contrary to the interests of an employer, employees who are held in an esteemed position of trust or confidence (e.g., corporate officers, employees with substantial knowledge or unique skills) carry a greater fiduciary obligation to their employer.
How is a fiduciary duty breached?
The determination of whether a fiduciary duty is breached is highly dependent on the facts and circumstances at hand. However, in general, courts will find that an employee has breached his fiduciary duty in instances where the employee has used his knowledge or position of trust for personal gain or for the benefit of a competitor.
For example, Virginia courts have found that an officer breached his fiduciary duty by making plans to compete with his current employer, recruiting co-workers to join him in a new venture, and by organizing a mass resignation from the employer.
Virginia courts have also found that an employee breached a fiduciary duty by using a former employer’s confidential information for the competitive advantage of a new employer.
Given the transient nature of employees in today’s marketplace, a claim for breach of fiduciary duty is an additional weapon that employers can use to mitigate any damages resulting from an unfaithful key employee. As fiduciary duty claims are factually intensive, (and therefore more likely to survive a demurrer or summary judgment), they also provide employers with a viable cause of action in instances where the facts may not fully support other business claims.
Stay tuned for Part 4 of the Virginia business litigation claims series, which will focus on tortious interference with a contract.
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What is the statute of limitations for a breach of fiduciary duty? When would the cause of action accrue in a case of conversion where the tortfeasor retained the funds over more than a year?