Fiduciary Employees Held to a Higher Standard
The definition of a “fiduciary employee” is not black and white. However, breaching a fiduciary obligation can be costly and, sometimes, even be career suicide.
It is important to know when you may be in the grey “fiduciary” area.
Who is a fiduciary employee?
An employment contract does not necessarily spell out who is and is not a fiduciary, and even if your contract says you are, this doesn’t mean it’s true. Therefore, an employee may have a fiduciary duty to their employer, notwithstanding a formal employment contract.
Officers and very senior employees will most likely always have a fiduciary duty towards their employer. For more junior employees, the court will look beyond job titles and focus on their position within the company. The analysis is extremely fact-specific (as with most things in law).
If an employee’s position charges them with initiatives or responsibilities that take them beyond the role of obedient servant and into the realm of an agent of their employer, they are more likely to be deemed to owe a fiduciary duty. According to the case law, a fiduciary employee can range from an executive to a regional sales manager.
Some courts have suggested that a close relationship between an employer’s client and the employee can also create a fiduciary duty.
What are the obligations of a fiduciary employee?
The Supreme Court of Canada established in the 1973 case of Canadian AeroService Ltd v O’Malley that managers and directors of an organization owe their employer a fiduciary obligation that transcends their implied duty of fidelity as a regular employee.
This fiduciary duty includes an equitable obligation of loyalty, good faith, and honesty, as well as an avoidance of conflict of duty and self-interest. That is, these employees cannot engage in conduct through which there may be a conflict of interest between their own personal interests and that of their employer, without first disclosing that potential conflict to their employer.
Directors and Officers most often fall within the fiduciary category. As part of their obligations, these employees cannot use their position and influence in the corporation to set up a competing business or solicit the corporation's employees to join them.
A fiduciary employee is under greater restrictions than other employees regarding soliciting business from a former employer’s customers, but may be released from any post-employment obligations with an express agreement.
Departing fiduciary employees
A fiduciary employee’s “mere planning” to set up a venture in competition with the employer will not necessarily breach their duty. However, even a non-fiduciary may inherit fiduciary obligations if they depart with a fiduciary employee in order to set up a competing business.
A fiduciary is not eternally prohibited from setting up a competing business; if applicable, they will only be limited for a reasonable period of time after the employment relationship has ended.
Breach of a fiduciary duty
A fiduciary employee is open to a variety of possible claims, one of which is a claim for wrongful interference with business. In this case, an ex-employee can be liable for punitive damages for breaching a post-employment fiduciary duty.
An employer can also seek the following costs for a breach of a fiduciary duty: loss of profit, loss on sales, and increased costs.
Finally, breaching a fiduciary duty is cause for summary dismissal, and an employer can bring claims against not just former employees, but also existing ones.
Fiduciary employees have additional obligations placed upon them. If you want to learn more, or if you believe that you may be a fiduciary employee and are thinking of departure or starting your own business, contact our Employment Law Group.