When a Texas business suspects fraud, embezzlement, harassment, trade secret theft, or regulatory violations, the instinct is often to “just investigate.” But internal investigations carry significant legal risk. If handled incorrectly, they can create liability for defamation, retaliation, invasion of privacy, or even criminal exposure.

This article explains the legal framework governing internal company investigations in Texas and highlights key statutes every business owner should understand.

1. Employer Authority in Texas: At-Will Employment Still Has Limits

Texas is an at-will employment state. The Texas Supreme Court reaffirmed the at-will doctrine in East Line & R.R.R. Co. v. Scott, 10 S.W. 99 (Tex. 1888), and it remains the default rule.

However, “at-will” does not mean “anything goes.”

Employers investigating misconduct must still comply with:

• Federal anti-discrimination laws (Title VII, ADA, ADEA)
• The Texas Commission on Human Rights Act (TCHRA), Tex. Lab. Code § 21.001 et seq.
• Whistleblower protections
• Privacy statutes
• Defamation law

An investigation that appears retaliatory or discriminatory can convert a routine HR matter into a lawsuit.

2. Retaliation Risk Under Texas Law

The Texas Labor Code prohibits retaliation against employees who complain about discrimination or participate in an investigation.

Tex. Lab. Code § 21.055 provides that an employer commits an unlawful employment practice if it retaliates or discriminates against a person who:

• Opposes a discriminatory practice,
• Makes or files a charge,
• Files a complaint, or
• Testifies, assists, or participates in an investigation or proceeding.

If your internal investigation targets someone who recently complained about harassment or discrimination, timing alone may create exposure.

Practical tip: Always document legitimate business reasons for investigative steps and disciplinary decisions.

3. Workplace Privacy and Electronic Monitoring

Many investigations involve reviewing emails, texts, or computer usage.

Under Texas law:

Interception of Communications

The Texas Penal Code makes unlawful interception of communications a crime:

Tex. Penal Code § 16.02(b) prohibits intentionally intercepting a wire, oral, or electronic communication.

However, there are exceptions — particularly where one party consents or the employer owns the system and employees have been placed on notice.

Clear written policies are critical.

Best practice:

• Written IT usage policy
• Express notice of monitoring
• Signed acknowledgment

Without this, reviewing private communications could expose the company to criminal or civil liability.

4. Defamation Exposure During an Investigation

During investigations, managers sometimes make statements like:

• “We think she stole money.”
• “He committed fraud.”
• “She’s under criminal investigation.”

Under Texas law, a person commits defamation if they publish a false statement of fact that harms someone’s reputation.

Texas Civil Practice & Remedies Code § 73.001 defines libel as:

“A defamation expressed in written or other graphic form that tends to injure a person’s reputation…”

Even internal communications can trigger liability if shared beyond those with a legitimate need to know.

There is a qualified privilege for workplace investigations — but it can be lost if statements are made with malice or reckless disregard.

5. Trade Secrets and Confidential Information

If the investigation involves suspected trade secret theft, the Texas Uniform Trade Secrets Act (TUTSA) applies:

Tex. Civ. Prac. & Rem. Code § 134A.002(6) defines a “trade secret” as information that:

• Derives independent economic value from not being generally known, and
• Is subject to reasonable measures to maintain its secrecy.

If a company has not taken “reasonable measures” (NDAs, access controls, policies), it may struggle to enforce its rights later.

Investigations often reveal weaknesses in compliance structures.

6. When to Involve Counsel

Certain investigations should immediately involve legal counsel:

• Allegations of executive misconduct
• Financial fraud
• Sexual harassment claims
• Whistleblower complaints
• Potential criminal exposure

Attorney involvement may allow invocation of attorney-client privilege, protecting sensitive investigative communications from disclosure.

Texas Rule of Evidence 503 protects confidential communications made for the purpose of facilitating legal services.

But privilege can be waived if communications are widely distributed.

7. Document Preservation Obligations

If litigation is reasonably anticipated, businesses have a duty to preserve evidence.

Failure to preserve evidence can result in spoliation sanctions. Texas courts recognize sanctions for destruction of evidence once litigation is anticipated.

Internal investigations often trigger that preservation duty — even before a lawsuit is filed.

8. Practical Framework for Texas Businesses

Before beginning an investigation:

1. Confirm a written workplace policy exists.
2. Identify potential retaliation risks.
3. Limit internal communications to a “need-to-know” group.
4. Preserve all electronic and physical records.
5. Avoid conclusory statements about guilt.
6. Consider involving counsel early.

Handled correctly, internal investigations reduce risk.
Handled poorly, they create it.

Why This Matters for Texas Business Owners

Many small and mid-sized Texas companies conduct investigations informally — often by a manager or owner with no HR or legal training.

But investigations implicate:

• Employment law
• Privacy law
• Defamation law
• Trade secret law
• Evidence preservation rules

A poorly handled investigation can turn a manageable internal issue into multi-year litigation.

If your business is facing a sensitive workplace issue, proactive legal guidance can protect both the company and its leadership.

At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.