Topic: Fiduciaries
Column: “Employment Issues” - Legal Matters Issue 867
Written By: R. Yeager
May 18, 2006
The relationship that arises from employment can create some very substantial duties and responsibilities, some of which survive the end of the relationship and continue on for quite some time afterwards. Perhaps the most substantial duty is that of fiduciary, and it certainly is a duty which can continue after the end of the employment relationship.
What or Who is a Fiduciary?
A fiduciary is a person or entity who the law views as standing in a position of trust in relation to another person or entity. Historically, it was the actual type or class of relationship, agent or trustee or doctor and such, that determined whether a person was a fiduciary or not. For instance, real estate agents have been held to owe fiduciary duties to their clients, as have stockbrokers and financial advisors where they have some discretionary role in managing investments instead of just taking orders. At some points, banks have slipped from their normal relationship of debtor-creditor with their clients into fiduciary duties. Insurers have been held to owe a duty of utmost good faith, which is a fiduciary duty. In most circumstances, employment lawyers, accountants and doctors certainly stand as fiduciaries to their clientele.
A fiduciary is held to an extremely high standard by the law. A fiduciary is expected to place his or her own interests aside and service the interests of the person or entity who is owed the fiduciary duty (the beneficiary). A fiduciary can be held to strict account for breaches of duty, and owes the beneficiary a duty of utmost good faith. The duty of utmost good faith exposes the fiduciary to numerous doctrines at law designed to keep the fiduciary honest, including duties related to conflict of interest.
The law has evolved to the point where the determination of fiduciary duty can be made based on the nature of the relationship in question. In other words, fiduciary duties can arise in all manner of circumstances if the relationship supports such. This is important to employment law.
How Fiduciary Duties Arise
While the employment contract does not generally cause fiduciary duties to arise, where circumstances warrant, the employee’s duty under the employment can be elevated to the status of a fiduciary duty. The key is whether there has been a reposing of trust and confidence by the employer to the employee. The focus of the analysis of whether an employee also owes fiduciary obligations to the employer relates to the degree of responsibility conferred onto the employee in relation to the total enterprise of the employer. For instance, people who occupy key positions, or have specialized knowledge, or exclusive access to clients of the employer, or occupy management positions of a type and sort that provide access to the very inner workings of the employer, can assume fiduciary duties. It is unlikely that persons occupying senior management positions within their employment will successfully avoid owing a fiduciary duty to their employer. Further, small businesses may be more susceptible to creating fiduciary duties in their employees, based on their vulnerability. In fact, even persons carrying the label of independent contractor, under certain circumstances, can owe fiduciary duties to their employer. This is not an exhaustive list. The law says that the categories of fiduciary are not closed, meaning that each case will be determined on its own facts.
An interesting aside is that the law also supports the notion that the employer may owe the employee a fiduciary duty. Granted, the circumstances where such would be the case are limited to narrow facts. One such case involved a foreign nanny brought to Canada on a work permit that significantly restrained her ambit of freedom. The employer was found to owe the employee a fiduciary duty.
How These Duties Impact Dismissal and Notice
What it all boils down to is that the law will protect the vulnerable entity in the relationship from the abuses of the fiduciary.
Why am I mentioning all this? Primarily because an employee who is also a fiduciary will have many more limitations on his or her range of available options in remaining employed by, or in departing from employment with the employer. In fact, breach of fiduciary duty is cause for the employer to end the employment relationship. While a departing employee who is also a fiduciary is allowed to compete with the former employer, this right is significantly limited by the fiduciary duty, which imposes on the departing fiduciary employee, perhaps well after the employment ends, an obligation to avoid acting against the interests of the former employer. What this means is that the employee will be barred from attacking the interests of the former employer, by means of solicitation of clientele or employees, or the taking of a maturing business opportunity of the former employer, the use of confidential information of the former employer, and such.
Therefore, it is important for potentially departing employees to have a clear understanding of their actual duties owed to the employer.