Under What Circumstances Can a Company Sue an Employee?

Valid Reasons Where An Employer Can Sue An Employee

Most people realize there are circumstances in which an employee can sue an employer, but they may be less certain whether an employer can successfully sue an employee. Although it is usually more difficult for the employer to sue than vice versa, there are many valid legal reasons why an employer can bring action against an employee and win. Your Peoria business attorney highlights some of the most common situations:

Employer suing an employee in Arizona

Violating Non-Compete Clauses

Many employees provide legally binding clauses in their employment contracts that prevent an employee from working in a particular field and/or within a specified geographical area business for a specified period of time after their termination of employment. If a court finds that the agreement was reasonable, not overly restrictive, and made in good faith, an employer can anticipate a court to uphold that agreement in a lawsuit against an employee for breach of contract. This sort of agreement will need to have a reasonable time limit and conditions to be enforceable.

Violation of Non-Solicitation Agreements

Non-solicitation agreements prohibit employees from soliciting customers from their current employer in order to obtain a contract with those customers as an independent contractor (or on behalf of a new employer) after they leave the original company. As with non-compete clauses, this sort of agreement will need to have a reasonable time limit and conditions to be enforceable.


Defamation is more than just frustrated conversations about an employer; it includes statements that are known to be false and that harm the employer’s reputation or business. No monetary loss is required in order for the statements to be considered defamation. Fabricated claims regarding an employer, such as posts on social media or to a reporter, that are known to be false, are considered defamation and may give an employer legal grounds to sue an employee.

Breach of Fiduciary Duty

Employees owe a fiduciary duty and a duty of loyalty to their employer while they are still employed. For example, holding on to prospective business leads and bringing them to a new employer or to their own entrepreneurial venture, instead of presenting them to their current employer, is called “warehousing” and may constitute a breach of fiduciary duty. As an employer, you may be able to sue the employee after receiving guidance from your Avondale business attorney.


Generally speaking, employees are not held liable for carelessness or negligence while they are performing their duties. However, if the employee acts unreasonably and causes damage or injury to property or persons, the employer may be able to sue the employee for negligence. Additionally, situations of extreme negligence in which the employee acted outside of the normal scope of reasonableness may also enable an employer to sue on the basis of “gross negligence.”

Employee Theft

If an employee has stolen tangible equipment, such as a computer, printer, vehicle, or machinery, an employer can legally sue the employee for theft. They may also have grounds to file a suit against an employee who destroyed property and/or equipment. In other situations, employees will illegally retain property after their termination or resignation. Sometimes this is done in retaliation, such as if the employee feels he or she did not get severance pay or other compensation they expected. However, these actions are illegal and can be considered misappropriation or theft, and may be grounds for the employer to sue the former employee.

Theft of Trade Secrets

It’s easy to see that theft of tangible property is illegal, but many people don’t realize that trade secrets, such as proprietary formulas, recipes, documents, databases, and more can also be stolen. In these cases, the trade secrets are considered to be misappropriated by the employee and the employer should work with an experienced Arizona intellectual property lawyer to determine the correct course of action.

Using Company Resources To Find New Employment

Many employees will utilize paid time off and lunch hours in an attempt to find new employment, but use of a company email address, company funds, or company property to secure new employment can constitute a breach of contract and even theft. Use of a company vehicle or travel funds to get to an interview are two common examples that can leave an employer with cause of action against the employee.

Employers Have a Right to Sue Employees

Under many circumstances, employers have a right to sue a current or former employee under the advice of their Glendale business attorney. However, even if the employer is successful in that litigation, it may turn out that the employee does not have sufficient funds to satisfy the judgment. However, it may still be beneficial to the employer to pursue a claim in court even if they know the employee does not have the ability to repay, as this will send a strong message to other employees.

Meet Arizona’s Top Rated Business Attorney Team

Denton Peterson Dunn is a rising attorney firm in the state of Arizona, specializing in all areas of business law, including trademarks, patents, litigation, real estate, and franchise law. We are proud to provide a personalized approach with successful results. Contact us today to discuss your case!


Brad Denton, Business Lawyer
 – Denton Peterson Dunn

1930 N Arboleda #200
Mesa, AZ 85213

Office: 480-660-3249
Email: [email protected]
Website: https://arizonabusinesslawyeraz.com

7272 E Indian School Rd #540-132
Scottsdale, AZ 85251

Phone: 480-690-3283
Email: [email protected]