Learn more about what a tort is in business.
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A tort is a wrongful act or omission that harms another person, resulting in civil legal liability. But a tort has a business definition as well. Learn about business torts and how they can affect your company.
Sometimes when companies are competing for business, they cross the line legally and may be liable for a business tort.
What is a business tort? The definition of a business tort is a wrongful act or omission that causes financial harm or otherwise negatively affects another business, resulting in legal liability. It doesn’t include claims based on contract law.
Torts are different from crimes. Criminal law involves punishing the wrongdoer, while tort law’s purpose is to compensate the victim (whether it be a person or business).
Business torts may be intentional or arise from an individual’s negligence.
When one party intentionally does something that harms the other party, it’s an intentional tort.
Torts involving negligence occur when one party had a duty to another and breached that duty, causing the other party to incur damages.
What are business tort examples? Here are some common ones.
Fraud can take many forms, but typically it involves a party intentionally (sometimes negligently) making a false representation of a material fact with the intent that another party act upon it. The other party does act upon the misrepresentation and suffers damages.
Unfair competition encompasses deceptive or wrongfulbusiness practices that financially harm another business.
When a person uses confidential business information without authorization, it’s theft of trade secrets. Some jurisdictions protect against theft of trade secrets under unfair competition laws, while others categorize it under intellectual property laws.
This is deliberate and unlawful interference with a company’s:
The interference must be intentional.
Restraint of trade is conduct that hinders another legal entity’s ability to conduct business normally or freely.
Commercial disparagement is when someone makes a false and negative statement about a business’s goods or services to inflict monetary harm. This may also be referred to as trade libel.
While these concepts are just a sampling, the body of law addressing business tort benefits everyone from a small business owner to a public corporation because it helps level the playing field.
Courts award damages for a business tort, meaning they order the wrongdoer to compensate the victim company for the financial harm it suffered. These compensatory damages may cover:
Sometimes courts will also award punitive damages, which deter the wrongdoer from engaging in similar conduct in the future.
Where appropriate, a court may grant injunctive relief. This involves requiring a party to do a certain act or restraining a party from doing an act. The court will award injunctive relief only if nothing else (like monetary damages) will remedy the wrong and not doing so will result in irreparable harm.
When one party commits a wrongful act or omission that financially harms another business, it’s called a business tort. One of a business tort’s advantages in a lawsuit is that it allows the harmed company to recover monetary compensation for its losses. But unless the business is able to obtain injunctive relief, one of a business tort’s disadvantages is that even losing a lawsuit may not deter the wrongdoer from repeating the same bad actions.
Part of running a business is setting the tone and expectations for your employees. Drafting a detailed operating agreement is the first step in setting the rules your limited liability company will follow. You want to ensure that everyone complies with the law. We can get you started with our Operating Agreement Template.
Disclaimer – The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.