In Ramin’ Corp. v. Wills, an employer sued a former employee for breach of fiduciary duty and other claims based on the employee competing with the employer while she was an employee. No. 09-14-11168-CV, 2015 Tex. App. LEXIS 10728 (Tex. App.—Beaumont October 15, 2015, no pet. history). The trial court found that the employee did breach her fiduciary duty, but held that the employer sustained no damages. The trial court also found for the employee on several of her counterclaims. Both parties appealed.

The court of appeals acknowledged that an employee does not owe an absolute duty of loyalty to her employer, and that absent an agreement to the contrary, an at-will employee may plan to compete with her employer, may take active steps to do so while still employed, may secretly join with other employees in a plan to compete with the employer, and has no general duty to disclose such plans. However, the at-will employee may not act for his future interests at the expense of his employer or engage in a course of conduct designed to hurt his employer.

One of the employer’s arguments was that the trial court erred in not awarding a forfeiture or disgorgement of profits. The court of appeals first held that a party must plead for forfeiture or disgorgement relief and held that the employer had adequately done so. The court then addressed the merits of the argument. It held that under the equitable remedy of disgorgement, a person who renders service to another in a relationship of trust may be denied compensation for her service if she breaches that trust. The court further stated that the objective of the remedy is to return to the principal the value of what the principal paid because the principal did not receive the trust or loyalty from the other party. Disgorgement also involves a fiduciary turning over any improper profit that the fiduciary earned arising from a breach. The party seeking forfeiture and equitable disgorgement need not prove any damages as a result of the breach of fiduciary duty.

The court explained that a trial court has discretion in awarding disgorgement or forfeiture and may consider several factors, including (1) whether the agent acted in good faith; (2) whether the breach of trust was intentional or negligent or without fault; (3) whether the breach of trust related to the management of the whole or related only to a part of the principal’s interest; (4) whether the breach of trust by the agent occasioned any loss to the principal and whether such loss has been satisfied by the agent, and (5) whether the services of the agent were of value to the principal. A court may also consider evidence of the fiduciary’s salary, profits, or other income during the time the breach occurred.

The court affirmed the employer not receiving any disgorgement or forfeiture damages. The court held that there was evidence that the employee was not enriched by her activities: “we conclude that there is an absence of evidence to establish that Wills’ breach of her fiduciary duty was directly connected to her recovery of overtime, or that Ramin incurred any loss resulting from Wills’ breach, and there is no evidence that Wills’ services she performed for Ramin during the overtime hours were of no value to Ramin.”

Interesting Note: This case is important for disgorgement and forfeiture cases in that it requires some causal link between the acts of fiduciary breach and the forfeiture and/or disgorgement. Before a plaintiff is entitled to an award of a forfeiture or disgorgement, it should have to establish some causal link between the act of fiduciary breach and benefit to the fiduciary that is being ordered to be disgorged. Otherwise, the remedy would be merely punitive.