BREAKING DOWN FIDUCIARY EMPLOYEES, AND THEIR OBLIGATIONS 

Within healthy workplaces, employees are valued and trusted by their employers. However, on top of this base level of trust in employees, there is a legal concept known as a “fiduciary employee”. A fiduciary employee is trusted by their employers to the point that they attract extra obligations in the employment relationship. These fiduciary obligations can have significant impacts on the employment relationship, especially upon termination, and can attract significant damages if not managed carefully.

 

What is a fiduciary duty?

In the employment context, a fiduciary duty is when an employee has a legal obligation to put their employer’s interest before their own. This legal obligation is not imposed lightly on employees. There are two parties in this kind of relationship: a fiduciary and a beneficiary.

The employee is the fiduciary, as they hold vulnerable information about their employer that could be detrimental to the employer. The employer is the “beneficiary” in this relationship, and they rely on the employer to maintain the sanctity of the private information.

Fiduciary obligations aim to protect the vulnerable party in work relationships that involve a high-level trust and confidentiality. The employee is the party who possesses the power to misuse confidential information.

 

What kind of employees have a fiduciary duty?

Not all employees are fiduciaries. Simply being in an employment relationship, or being an employee, does not create a fiduciary relationship.

Fiduciary obligations can come from employment contracts or can be inferred when an employer heavily relies on and trusts an employee. An employee’s fiduciary obligation can be an implied term of employment contracts, which arises when the employee has enough power or discretion to use information in a way that could negatively affect their employer.

The employees that have fiduciary duty are most often those considered “high-powered”. These employees usually have what is known as a “directing hand” in their workplace.

Regardless, lower-level employees can also have fiduciary obligations. For a Court to find the existence of a fiduciary relationship between an employer and an employee, they primarily consider:

 

• The extent to which an employer is dependent or vulnerable on the employee, and
• Whether the employer has reposed trust and confidence in the employee on a continual basis, and will rely on the employee to make business decisions

Ultimately, these elements could be found in a variety of employment relationships.

 

Who is a Fiduciary Employee?

While employees in high level management positions are most likely to be found owing a fiduciary duty due to their level of control, courts have repeatedly emphasized that they will look beyond an employee’s title.

Employers can outwardly label an employee a fiduciary. But even with this label, an employee may not legally satisfy the legal standard of being a fiduciary.

 

Test for Determining a Fiduciary Employee

Courts rely on a three-part test set out in the case Lac Minerals Ltd. v. International Corona Resources to determine whether a fiduciary relationship is present between and employer and an employee:

 

1. The fiduciary has scope for the exercise of some discretion or power
2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

Each of the above elements are not required for a finding of a fiduciary relationship, and the presence of all of the above do not guarantee that a fiduciary relationship is present. Determining whether an employee is a fiduciary employee is a fact heavy analysis, based on contextual factors.

 

The more pivotal the employee, the more likely fiduciary obligations

The more “key” an employee is a workplace, the more likely that they will owe a fiduciary duty to their employer. In short, a fiduciary obligation often arises when an employee holds a level of power that can have a negative impact on their employer, or former employer, if wielded.

This kind of power isn’t only held by CEO’s or managers, as mentioned above.

In 581257 Alberta Ltd. v Aujla, the employees were cashiers at a liquor store, and were found to be in a fiduciary relationship with their employers. The Court found that the employees owed a fiduciary duty, as they would handle their employer’s funds, and were left alone in the store with the keys to access said funds. The employer was therefore vulnerable and reliant on the employees to protect and manage their money.

The discretionary power granted to an employee, which in turn creates fiduciary obligations, does not need to be total power. There could be a fiduciary obligation even when the employee’s power is limited.

 

What are my obligations as a fiduciary employee?

To protect employers from employees misusing their power, the law has recognized that fiduciary employees must, at all times, act in the best interests of their employers.

Fiduciaries owe particular duties when acting in this best interest, including:

 

• A duty of loyalty;
• A duty of good faith; and
• A duty of honesty

 

What actions would breach my fiduciary duty?

Aside from violating the above-mentioned obligations, it is important to remember that a fiduciary relationship is built on trust. Actions undermining this trust can generally be understood as a breach of fiduciary obligations.

A common example of the trust element in fiduciary obligations is when an employee works closely with an employer’s key clients. When the employment relationship eventually ceased, the employer would rely on the trust between themselves and the employee to ensure that the former employee would not poach their important clients.

Therefore, fiduciary obligations can be breached, for example, when former employees solicit clients from a former employer to benefit a new employer, or a former employee misuses information to negatively affect their previous employer.

If an employee violates their fiduciary obligations, the employee risks being terminated for cause.

 

How long am I a fiduciary employee?

A fiduciary duty lasts the entire employment relationship, and continues after the employment relationship is done. An employee is a fiduciary while they are employed, as well as after termination.

The fiduciary obligations owed by the fiduciary employee to the employer persevere for a “reasonable period” following the end of employment. Fiduciary employees continue to have the obligation to not exploit advantages they gained from their prior role with their prior employer.

There is always an implied loyalty between a fiduciary and a beneficiary.

 

What can I do as an employer if a conflict arises?

When there is a suspected breach of fiduciary obligations by a fiduciary employee, the beneficiary employer can take action for this breach of fiduciary duty.

This could be terminating the employee with just cause. This could also be seeking damages in court for a loss the employer may have incurred as a result of the breach. The employer could claim damages based on a direct loss to them, such as a contract they lost because of their fiduciary employees actions.

Another course of action for the employer could be requesting an injunction to prevent the fiduciary from further harming the employer’s business. Seeking an injunction is an extraordinary remedy, which is available if a court determines that:

 

1. There is a serious issue to be tried;
2. The requesting party (the employer) will suffer “irreparable harm” if the injunction is denied; and
3. The balance of convenience weights in favor of granting the injunction

 

Key Takeaways for Employers and Employees

With an employee owing fiduciary obligations, employers do not need to rely on having these kinds of relationships. Employers can consider employment agreements that contain language that sets out employees confidentiality obligations, and carefully restricts their ability to solicit other employees or clients.

Employers need to remember that it is the nature of the relationship with the employee that determines a fiduciary duty, and not to rely on the contents of the employment agreement. Further, it is important that employers are able to understand when one of their employees is a fiduciary, thereby owing them obligations that continue past employment. Sultan Lawyers can assist employers to determine whether an employee is a fiduciary and assist in enforcing those fiduciary obligations if necessary.

Executive level employees held to fiduciary obligations should have any new employment agreements reviewed by an employment lawyer to assess the implications of these obligations when taking on new roles.

 

CONTACT US FOR MORE INFORMATION

If you are an employee who is concerned as to whether they owe their employer these extra duties, or an employer who has questions as to whether they have employees of this nature, we encourage you to contact your Toronto employment lawyers, Sultan Lawyers.

Contact us for a free call back or flat-rate consultation to better understand your rights and the options available to you in relation to workplace fiduciary relationships, and your related rights and obligations. Please contact us by telephone at 416-214-5111 or here.