A fiduciary duty is a legal obligation of one party to act in the best interest of another. The obligated party would be labelled a fiduciary, someone entrusted with the care of money or property. This is a duty of loyalty and good faith.
Do all employees have a fiduciary duty?
No. The mere existence of an employment relationship does not on its own create a fiduciary obligation of one party toward the other. Often, a fiduciary duty is placed on senior officers in an organization prohibiting them from soliciting customers from their former employers or from divesting its corporate opportunities.
How to determine if an employee is a fiduciary
At times an employer may label an employee as a fiduciary and/or bestow prohibitions on an employee normally reserved for those with fiduciary obligations. However, the determination is not based on the label given but rather the substance of the relationship.
Generally, “the relationship becomes elevated to the fiduciary level when the employer reposes trust and confidence in the employee on a continual basis, relying upon the employee in reaching business decisions. It is the trust and reliance transferred by the employer which gives the employee the power . . . to make business decisions, on the employer’s behalf.” A summary of the circumstances in which an employee becomes a fiduciary was outlined in Canadian Industrial Distributors Inc. v. Dargue .
How long does a fiduciary duty last?
A fiduciary duty outlasts the duration of employment and still continues after the employment is terminated. In the case of a resignation, a fiduciary is still held to their obligations of loyalty. In Canadian Aero Service Ltd. v. O’Malley , the court found that a director or senior officer is held to a strict ethic which disqualifies them from taking for themselves or directing to another person or company they are associated with a maturing business opportunity that their company is actively pursuing. The restriction from acting on it still continues even after a resignation, especially if that resignation is prompted by the desire to acquire the business opportunity rather than being led to acquire it through a fresh initiative.
Case Law Examples
Whether a court will uphold a prohibition based on a fiduciary obligation is dependent on unique facts of the case. For instance, in Kouyoumdjian v. Toronto Leather Fashions, Inc., the employer attempted to prevent the employee from opening a business selling similar products. The court found that the employee was not in violation of his obligations to the employer as the products were more expensive and the store was 70 miles from the company.
However, the court found there was a breach of fiduciary duty in a case named, A.W. Screw Machine Products Ltd. v. Clark, where the employee quit and left to work for a company he owned selling the same product.
In another scenario, MacLean v. CrossOff Inc., a court found there was no breach of fiduciary duty when an executive contacted his previous employer’s customer to determine if he could be considered for contracts for management of properties under distress or foreclosure. The court noted that there was nothing exclusive or proprietary about the list of customers accessed since a very small community of individuals were involved in distressed or foreclosed properties and the list of customers consisted of lending institutions.
As detailed above, it is the nature of the relationship that determines whether a fiduciary duty exists. Executive level employees being held to fiduciary obligations can benefit from having any new contracts of employment reviewed by an employment lawyer to discuss the implications of any such obligations and to assess whether the overall contract is appropriate or if there are any terms that should be negotiated. To arrange for your free confidential 30-minute phone consultation make sure to contact us today.
About the Author: Busayo Faderin is an Employment Lawyer and Senior Associate at Monkhouse Law where she practices Employment, Human Rights and Disability Insurance Law. Busayo can be reached at firstname.lastname@example.org.