Fiduciary Duties in Employment

The term "fiduciary" is commonly used when discussing financial advisors or trustees. However, fiduciary relationships can arise in a wide range of circumstances, including in employment relationships. Broadly speaking a fiduciary is an individual who occupies a position of power and trust, and thus owes a duty to act loyally and not abuse that position.

In this blog post, we explore when an employee may be found to be a fiduciary and what that means.

Who is a fiduciary?

Only certain employees will be fiduciaries. While the determination of whether an employee is a fiduciary is fact dependent, typically fiduciary obligations will only be imposed on those employees who occupy positions of power within the business, such as senior management or employees who are the "face of the business".

A fiduciary relationship will generally exist where the following three characteristics are present:

1. The individual has scope for the exercise of some discretion or power;
2. The individual can unilaterally exercise that power or discretion so as to affect the company's legal or practical interests; and
3. The company is particularly vulnerable or at the mercy of the individual holding the discretion or power.

The key feature is that of dependency or vulnerability. The greater the degree of trust and confidence placed in the employee, and the greater the extent to which the employer depends on the employee, the more likely the employee is a fiduciary.

In the employment context specifically, the following factors are all relevant to determining if a fiduciary relationship exists:

• Job duties
• Extent or frequency of contact between the employee and the former employer's customers and/or suppliers
• Whether the employee was the employer's primary contact with the customers or suppliers
• The extent to which the employee was responsible for sales or revenue
• The extent to which the employee had access to and makes use of or otherwise has knowledge of the former employer's customers, their accounts, the former employer's pricing practices, and the pricing of products and services
• The extent to which the former employee's information as regards customers, suppliers, pricing etc. was confidential

What are a fiduciary's duties?

A fiduciary employee is required to act honestly and loyally in the employer's best interests, and to avoid conflict of interest. Fiduciaries are expected to put the employer's interests first and to not act in a manner that would harm the employer.

The exact scope of a fiduciary's duties will depend on their unique relationship with the employer. A CEO of a multi-national corporation will have slightly different duties than the manager of a small private business. Nevertheless, all fiduciary employees will typically owe the following duties:

• Duty to Not-Compete: Fiduciaries owe a fundamental duty not to compete with their employer, both during their employment relationship and after its end. The corollary to this is if a fiduciary wishes to branch out, the fiduciary is required to disclose that intention to their employer.
• Duty of Non-Solicitation: Fiduciaries are generally precluded from soliciting their employer's customers either while employed or post-employment. Generic advertising will not usually amount to a breach of this duty.
• Duty of Confidentiality: Independent to any contractual obligations, fiduciaries are barred from misusing or misappropriating their employer's confidential information.

Importantly, these duties can continue for a period even following the end of the employment relationship. Employees who believe they may be a fiduciary are encouraged to seek legal advice on the obligations they may owe to their current or former employer.

What amounts to a breach of fiduciary duty?

Whether a fiduciary employee's actions give rise to a breach of fiduciary duty will be very fact and circumstance dependent. For example, a worker's misappropriation of his former company's client lists for his own use was found to be a breach of fiduciary duty. On the flipside, a worker was found not to have breached his fiduciary duty when he relied on his former company's performance standards and administrative procedures following the end of his contract, as the company had no proprietary interest in such information.

The consequences for a breach of fiduciary duty can be severe. For current employees, it may provide grounds for the employer to terminate their employment for cause. Additionally, the employee may be required to compensate the employer for the losses it suffered as a result of their breach or disgorge any profits the employee generated from their wrongdoing. In especially egregious cases, the employer may also be able to claim additional punitive damages.

Takeaways:

Fiduciary employees owe a heightened duty of care to their employer, even following the end of their employment. If a fiduciary fails to discharge their obligations to their employer, the employer may be able to terminate their employment for cause and/or pursue legal action.

Employees who believe they may be fiduciaries are encouraged to take their duties seriously and seek legal assistance. Lee Workplace Law would be happy to answer any questions you may have about your workplace rights and obligations.