Sense of duty

With fiduciary obligations wide-ranging, employees need a clear understanding of the duties they may owe an employer

Employment issues: Robert Yeager

The relationships that arise from employment – whether they be between an employee and an employer or an agent and a client – create some very substantial duties and responsibilities.

Some of these survive the end of the relationship and can continue on for quite some time afterwards.

Perhaps the most substantial of these is that of fiduciary. But what – or who – is a fiduciary? A fiduciary is a person or entity viewed by the law as standing in a position of trust in relation to another person or entity.

Historically, it was the actual type or class of relationship (such as agent or trustee or doctor) which determined whether a person was a fiduciary or not. Real estate agents, for instance, have been held to owe fiduciary duties to their clients, as have stockbrokers and financial advisors where they have had a discretionary role in managing investments. In most circumstances, lawyers, accountants and doctors certainly stand as fiduciaries to their clientele.

A fiduciary is held to an extremely high standard in law:

They’re expected to place his or her own interests aside and service the interests of the person/entity owed the fiduciary duty (the beneficiary);

They can be held to strict account for breaches of duty and owe the beneficiary a duty of utmost good faith; and

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 upon 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.

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 placing of trust and confidence in the employee by the employer.

The focus of the analysis of whether an employee also owes fiduciary obligations to the employer relates to the degree of responsibility conferred upon the employee in relation to the employer’s total enterprise.

It’s unlikely that persons occupying senior management positions within their employment will successfully avoid owing a fiduciary duty to their employer. Small businesses may be more susceptible to creating fiduciary duties in their employees. 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. Indeed, the law says that categories of fiduciary are not closed with each case determined on its own facts.

It’s worth noting 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.

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/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 upon 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, the taking of a maturing business opportunity of the former employer, the use of confidential information of the former employer, and so on.

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