When you have a business, you put a great deal of trust in your partners, managers, and employees. When someone breaches that trust, it can be very costly for your business as well as you as an individual.
Below, we’ve compiled a number of breach of fiduciary duty examples that are common in businesses.
If you believe you have experienced any of these or any similar examples, you should consider contacting an experienced commercial litigation attorney to help you understand your options.
What Is Breach of Fiduciary Duty?
Breach of fiduciary duty occurs when someone has a responsibility to act in the interests of another person and fails to do so.
There are four breach of fiduciary duty elements.
A fiduciary duty is the responsibility to act in the interests of someone else. To establish that a fiduciary duty existed, you need to show that there was a special relationship of trust between you and the other party.
Examples of such relationships include those between an employee and employer, an attorney and client, and a trustee and beneficiary.
Next, you need to show that the other party violated their fiduciary duty by doing something contrary to your interests.
You also have to show that you suffered a loss. If the breach did not actually affect you in any way, you cannot recover damages.
Finally, you have to show that the breach of fiduciary duty directly caused the damages you suffered.
If you suffered damages but they were unrelated to the breach or were not a foreseeable result of the breach, you won’t be able to recover.
Breach of Fiduciary Duty Examples
Many types of fiduciary relationships can arise in a business context. The following breach of fiduciary duty examples represent some of the most common.
Agents and Employees
One of the most common fiduciary relationships is that of agent and principal. An agent can be anyone who takes on a responsibility to act on another’s behalf.
They have a fiduciary duty to further the interests of the principal and not act contrary to those interests.
Employees are considered agents of their employer, who is the principal. Non-employees can also be agents if they agreed to act on behalf of a company or individual.
For example, if you have independent contractors or you have hired an outside firm to do work for you or negotiate on your behalf, those people could be considered agents.
Common examples of an agent breaching a duty to a principal include:
- Sharing an employer’s trade secrets;
- Failing to follow the employer’s directions;
- Improperly using or failing to account for employer funds;
- Acting on behalf of a competitor;
- Failing to exercise care in carrying out duties; and
- Profiting at the employer’s expense.
If you hire someone to work for you, you should be able to rely on them to act in your best interests. If they fail to do so, you may be able to recover for any resulting damages.
For example, if an employee lured clients away to work for another company, you could get damages for any loss of business or goodwill.
Partners have a fiduciary duty to act in the interests of one another and the company. Partners can breach this duty by doing things like:
- Mismanaging, comingling, or failing to account for company funds or assets;
- Exposing the partnership to liability through negligence or malfeasance;
- Damaging the goodwill of the company through illegal or wrongful behavior;
- Concealing important information from partners;
- Failing to disclose conflicts of interest; or
- Self-dealing, such as taking a business opportunity from the partnership for their individual benefit.
Partners need to be able to expect that all other partners will do their best to help the company succeed. If you have a partner who is consistently careless or, worse, sees your company as their own personal piggy bank, it’s not something you can ignore. A partnership attorney can help you understand your options and take action to protect your business.
Board of Directors
Every corporation has a board of directors that is elected by the shareholders and makes decisions on behalf of the company. In closely-held corporations, the board is frequently made up of majority shareholders. However, in larger corporations, board members are more likely to include other professionals who have been brought in to manage the company.
No matter how the board of directors is comprised, its members have a fiduciary duty to act in the interests of the company’s shareholders. A parallel duty applies to managing members of an LLC to act on behalf of all other members.
Many of the same types of breaches that occur in the partnership context can also occur with members of a board of directors. Additional examples include:
- Preventing shareholders from exercising their voting rights;
- Denying shareholders access to records;
- Refusing to pay dividends;
- Voting unreasonable compensation for themselves; and
- Taking wrongful actions to force out minority shareholders.
If the board of directors or individual board members have breached a fiduciary duty to the shareholders, the shareholders can bring a lawsuit to protect their interests.
How Can an Attorney Help?
The Miller Law Firm, P.C., is a leader in complex business litigation, and we have represented businesses of all sizes from all over the country. We have recovered over $3 billion on behalf of our clients. If you have suffered from a breach of fiduciary duty, call or contact us today to set up a consultation. We can help you understand what is a breach of fiduciary duty and determine whether you have cause for a lawsuit.