Key Takeaways

  • Business torts are wrongful acts that harm a company’s economic interests, reputation, or operations.
  • Common types include tortious interference, trade secret theft, restraint of trade, fraud, defamation, and commercial disparagement.
  • Some torts are intentional, while others arise from negligence or reckless conduct.
  • Remedies may involve monetary damages, injunctive relief, or contract rescission.
  • Businesses can face both reputational and financial harm, including loss of market share and future profits.
  • Prevention strategies, such as strong confidentiality agreements and non-compete clauses, can mitigate risks.

Business torts are wrongful actions performed against a business that causes harm to the business. Business torts may cause a loss of profits, loss of reputation, loss of business competitive advantage, loss of market share, and/or other types of losses. Business torts are also known as economic torts because they are often associated with losses of current or projected business profits.

Business torts may be committed intentionally (e.g., by a competitor business) or may be caused by negligent or reckless behavior by individuals or other businesses. Business torts may include conspiracy, trade libel, misrepresentation, negligence, and other civil offenses.

The legal recourse to a business tort is a civil suit in a court of law. In the suit, the defendant is the offending party, and the plaintiff is the harmed party. In a business tort case, the plaintiff must prove the following elements:

  1. The defendant had a responsibility (statutory or otherwise) to act in a certain manner
  2. The defendant did not uphold the responsibility
  3. The defendant's actions further caused the plaintiff a loss

In addition, the plaintiff must prove that the defendant's actions either were intentional or were negligent or reckless, as well as identify a specific law, contractual responsibility, or norm of behavior that the defendant breached. Finally, the plaintiff must prove that the defendant's actions caused a measurable loss.

The loss can be due to various types of misconduct, including malpractice, negligence, misrepresentation, theft of trade secrets, business disparagement, and so forth. The loss can also be caused by improper interference in the business interests or dealings of an individual or business. Losses can also include future, unrealized profits a business expects to lose as a result of a business tort.

Legal remedies to business torts may include the award of damages. Also, restraining orders and injunctions may be issued to inhibit a defendant from continuing to harm the plaintiff.

Types of Business Torts

Common types of business torts include:

Common Characteristics of Business Torts

Business torts share several defining features. Unlike criminal conduct, these wrongs usually arise in civil litigation where financial loss is at stake. Key characteristics include:

  • Economic harm: Most business torts result in measurable financial damage, such as lost profits or reduced market share.
  • Reputation impact: Beyond money, a company may lose goodwill, client trust, or competitive advantage.
  • Intent or negligence: Some torts are deliberate, like fraudulent misrepresentation, while others stem from negligence or failure to exercise due care.
  • Contractual overlap: Many business torts involve interference with contracts, breaches of confidentiality agreements, or misuse of trade secrets.
  • Complex litigation: These claims often involve extensive evidence, expert testimony, and damages calculations.

Tortious Interference

Tortious interference is the deliberate and unlawful meddling with the contractual dealings of a business. One interpretation of tortious interference may be interfering with the economic expectations of a plaintiff by harming a business relationship.

Restraint of Trade

Restraint of trade is a common law doctrine that requires that businesses and individuals do not take actions or enter into agreements that would cause another business to cease being able to operate normally. For example, creating a raw materials conglomerate that refuses to sell necessary materials to specific manufacturers could be construed as restraint of trade. Exceptions to this common law doctrine may include lawful non-compete agreements.

Theft of Trade Secrets

Theft of trade secrets is the unlawful accessing of proprietary business information to acquire an improper competitive advantage over a business.

Fraudulent Misrepresentation

Fraudulent misrepresentation is the deliberate or reckless statement of falsehood designed to induce a party to enter into a contract. It’s a breach of a good faith agreement and is grounds for civil claims, rescission of a contract, and the award of damages.

Negligent Misrepresentation

Negligent misrepresentation occurs when false information is provided without intent to deceive but with a failure to use reasonable care. For example, a business professional may make inaccurate financial projections or statements that another party relies on in making a deal. While less blameworthy than fraud, negligent misrepresentation can still lead to significant liability if it causes foreseeable harm.

Trade Libel

Trade libel is the publication of intentionally false information about the services or products of a business that causes a loss of revenue or profitability. Defamation of a business's products or services is a civil wrong.

Commercial Disparagement

Commercial disparagement is the intentional defamation of a business's reputation or property to cause harm to the business. Commercial disparagement is also a civil wrong.

Conspiracy and Unfair Competition

In some cases, multiple parties may conspire to damage another business’s operations. This could include price-fixing schemes, coordinated boycotts, or agreements to exclude a competitor from the marketplace. Such conduct may amount to unfair competition, which overlaps with antitrust law. These actions not only harm targeted businesses but may also restrict consumer choice and disrupt fair market practices

Remedies for Business Torts

The remedies for business torts include the award of damages to cover pecuniary losses, and restraining orders and injunctions to stop damaging actions. With respect to pecuniary damages, losses incurred by a business must be calculatable with "reasonable certainty.”

For example, in a commercial disparagement case, losses may include income from prospective clients that chose, based on the disparagement, to not conduct business with the company. To maximize the awarded damages, thoroughly identify all real and potential injuries, and carefully calculate a monetary loss incurred from each injury.

A judge may also issue restraining orders and injunctions to require the offending party to ceasing its damaging actions. For example, the offending party may be required to take back defamatory and disparaging statements about a business. Also, the offending party may be required to sign non-compete agreements in the theft of trade secret cases. Further, restraining orders may be issued to prevent the offending party from interfering in future contracts and transactions of the plaintiff's business, in tortious interference cases.

Preventing Business Torts

While legal remedies are available, prevention is often more cost-effective than litigation. Businesses can reduce risk by:

  • Drafting clear contracts that define rights and obligations.
  • Using confidentiality agreements and non-disclosure agreements (NDAs) to protect sensitive information.
  • Enforcing non-compete clauses within the limits of state law.
  • Implementing internal compliance programs to monitor employee and partner conduct.
  • Conducting due diligence when entering into partnerships or major contracts.

By adopting preventive measures, businesses can safeguard against costly disputes while maintaining competitive advantage

Frequently Asked Questions

1. What is the difference between business torts and contract breaches?

Business torts involve wrongful conduct that causes economic harm, while contract breaches are failures to perform contractual duties. Some cases may involve both.

2. Can a business tort be unintentional?

Yes. While many torts are intentional, negligent misrepresentation and similar claims may arise from careless but not malicious conduct.

3. What damages can be recovered in business tort cases?

Courts may award compensatory damages for actual losses, punitive damages in egregious cases, and injunctive relief to stop harmful behavior.

4. How do business torts affect small businesses differently from large ones?

Small businesses may be more vulnerable to reputational harm and financial disruption, as they often lack the resources to absorb prolonged losses.

5. How can companies protect themselves against business torts?

Using strong contracts, confidentiality agreements, compliance policies, and proactive legal counsel helps reduce the risk of tortious interference, trade secret theft, and fraud.

If you need help with claiming a business tort or defending against a business tort claim, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.