1. One of Welch’s issues on appeal was that she was not an employee that had agency authority. Why did the court decide that Welch had an agency relationship rather than a master-servant relationship? Do you agree?

2. What impact does the confidentiality clause in Welch’s employment agreement have on your analysis as to whether a breach of fiduciary duty occurred?

Getz was the co-owner of a self-storage facility called Space Place. In April 2005, Getz hired Stacy Welch as a property manager for their Houston facility. Part of Welch’s employment agreement required her to maintain strict confidentiality of Space Place’s business and customer information. In November of the same year, Welch accepted employment with Midtown, one of Space Place’s competitors, but continued to work for Space Place for the rest of the month. Getz was unaware of Welch’s employment with Midtown, but became suspicious when sales at the Houston facility dropped precipitously. An internal
investigation revealed that Welch had used a variety of techniques to divert customers from Space Place to Midtown’s facility. This included falsely telling inquirers that Space Place had limited avail-ability and that Midtown’s storage rates were lower. The investigation also revealed that Welch received bonuses from Midtown based on the amount of clients she referred to them.

Space Place sued Welch and Midtown. Space Place’s claims against Welch included an allegation that she breached her fiduciary duty of loyalty owed as an agent of Space Place. Welch filed a motion for summary judgment on this claim and others, but the trial court denied the motion. Welch appealed.

The Texas Court of Appeals ruled in favor of Space Place and held that sufficient evidence of a breach of fiduciary duty existed for the case to proceed to trial. The court ruled that certain employees owe a fiduciary duty to their employers under an agent/principal theory. Since Welch was an employee that occupied a position of confidence at Space Place, the relationship created a fiduciary relationship. Given Welch’s responsibilities and authority to transact business such as financial transactions, she is considered an employee agent and subject to fiduciary duties including the duty of loyalty. The court reasoned that Welch owed Space Place the duties associated with an agency including the duty not to act as, or on behalf of, an adverse party without the principal’s consent.

“When a fiduciary relationship of agency exists between employee and employer, the employee has a duty to act primarily for the benefit of the employer in matters connected with his agency. Among the agent’s fiduciary duties to the principal is to account for profits arising out of employment, the duty not to act as, or on account of, an adverse party without the principal’s consent, the duty not to compete with the principal on his own account or for another in matters relating to the subject matter of the agency, and the duty to deal fairly with the principal in all transactions between them. If an agent, while employed by his principal, uses his position to gain a business opportunity belonging to his employer, such conduct constitutes an action-able wrong.”