Fiduciary Duties For Employers and Employees

Much has been written in the law about the obligations of an employee as fiduciary of the employer, particularly when key employees or senior management are in positions of trust or responsibility.

Contractual duties and fiduciary duties may exist in the same relationship at the same time. Certainly, it is by now well established that key employees, possessing the necessary criteria at law, can become and remain the fiduciary of the employer. Being a fiduciary of someone else exposes the fiduciary to current and ongoing trust duties, that will limit the scope of behaviour of the fiduciary during and after the employment ends. Typically, we see the fiduciary employee who has moved on and somehow offended the fiduciary duty become the object of an injunction order issued by the court.

Fiduciary Duty Arises When

• The fiduciary has scope for the exercise of discretion or power;
• The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and
• The beneficiary is particularly vulnerable to or at the mercy of the fiduciary holding the discretion or power

Can The Employer Be The Fiduciary Of The Employee?

Recent case authority says yes, the employer can owe the employee a fiduciary duty. Both the British Columbia Court of Appeal and, most recently, the Ontario Court of Appeal have upheld findings from trial judges that the employer owed a fiduciary duty to the employee.

A Case for Fiduciary in British Columbia

The case in British Columbia involved a foreign nanny brought to Canada under a work permit arrangement. The plaintiff in that case came to Canada as the employer’s nanny, under the work permit. The work permit placed the employer in significant control of numerous elements of the plaintiff’s business and personal life. A document which was signed outlined her duties as well as her wages for 40 hours a week.

The court found a power dependency relationship existed that gave the employer a position of overriding power or influence over the plaintiff, and that discretion was vested exclusively in the hands of the employer. The court found that by withholding wages, requiring the plaintiff to work excessive amounts of unpaid overtime, and by threatening to return the plaintiff to her country of origin, the employer used its power over the plaintiff to promote its interests in the employment relationship in a manner that conflicted with its overriding duty not to take advantage of the plaintiff’s vulnerability.

The court awarded the plaintiff $175,000 in damages for the employer’s breach of fiduciary duty.

A Ontario Fiduciary Case

In the Ontario case, the employee had worked for 30 years to build up a block of business that generated vested commissions. Toward the end of the employment, the employer asked the employee to sign a new agreement that was later relied on by the employer to deny these vested commissions subsequent to dismissal. As a result of the employee entering the new agreement, the court found the employee was at the mercy of the employer. In this arrangement, the employer was held to have known the employee was dependent on the block of business for his livelihood, and the employee trusted the employer to act in his best interests with respect to the vested commissions. Thus, it was not the new agreement that gave rise to the fiduciary duty, it was the independent agreement through the inducements made at the time of the new agreement related to the vested commissions that caused the fiduciary duty on the employer to come into existence.

The result of the finding was that the employer was obligated to continue paying the vested commissions despite the termination of the employee’s employment, and when the employer failed to do so, it was in breach of the fiduciary duty. The court awarded $150,000 in damages for the employer’s breach of fiduciary duty.

Fiduciary Cases Are Rare

The facts in both these cases are atypical to general employment situations and somewhat unusual. However, the principle is clearly emerging that the employer, in certain circumstances, can owe a fiduciary duty to the employee, that a fiduciary duty may exist at the same time as the employment contract itself, and the court will award significant damages for such breach.