Employee Fiduciary Duties and Obligations

All for one one for all

What is a fiduciary employee?

The Saskatchewan Court of Queen’s Bench was recently occupied with this question when it decided the Impact Security Group Inc. v. Brown 2021 SKQB 226 matter. This case featured two higher-level employees leaving employment with a security company and opening a new security company. The employer believed that these individuals were using confidential information to solicit the employer’s clients and applied for an injunction to put and end to it. The employer claimed that both employees were fiduciaries.

The SKQB found that one of the employees was a fiduciary, but that the other was not. The key difference was that one of the employees had no responsibility for finances, budgets, pricing, purchasing, strategic planning or management of any kind, instead his main duties included supervising the company’s Regina office. The other employee, meanwhile, was a regional manger responsible for supervising 240 employees, he had knowledge of company finances, and had good knowledge of the company’s relationships with clients and in fact had relationships with certain clients before joining the company.

Fiduciary employees are often, but not always, high-level employees with a significant ability to impact the fortunes of the business. Essentially, courts will look at factors such as seniority, scope of duties, level of access to the organization’s financial and strategic information, the level of control the employee exhibits over the company’s actions, and other similar factors to determine whether an employee is a fiduciary employee.

Fiduciary employees have common law obligations of fidelity to their organization that is higher than a non-fiduciary employees. This typically manifests in greater requirements to provide notice to the employer if resigning and additional obligations with regards to conflicts of interest, solicitation, confidentiality, and unfair competition.

Can a fiduciary employee solicit business from a former employer?

The SKQB found that fiduciary employees may solicit their former employer’s business after a reasonable time has passed. The reasonable duration will depend on the circumstances of each case. In the case in front of the court, the fiduciary employee immediately solicited clients after resigning, and he therefore breached his fiduciary duties to his former employer. Notably, and importantly, the employee was not subject to a written non-solicitation clause.

Can an employer obtain an injunction where an employee breaches fiduciary duty?

The answer, as with most legal answers, is that it depends on the situation. Determining whether an injunction is granted is generally a three-stage process per the classic RJR-McDonald Test: a serious issue to be tried; irreparable harm would result if an injunction were refused; and the balance of convenience, i.e., which party would suffer greater harm if the injunction were granted or refused.

In the case at hand the court found that the violation of fiduciary duties was sufficient for the first stage, however the court did not find that the employer made a compelling case of irreparable harm. This is because the loss of revenue, if any, appeared to be minimal (perhaps $60,000), and there is no risk that the former employee would not be able to satisfy that amount if the risk were to eventualize.  The alleged loss of market share was speculative.

Interestingly, on the third stage, the balance of convenience, the court found that the granting the injunction would cause some commercial disadvantage to both sides, perhaps in equal measure. The court therefore defaulted to the position that, unless there are clear circumstances of unfairness and impropriety, commercial freedoms should not be restrained.  

Takeaways

Employers should ensure:

  • they have written non-solicitation clauses and not rely solely on the common law (in fact, you can rely on both) when attempting to protect their business interests.
  • fiduciary employees are made aware of their common law obligations in addition to any contractual obligations.
  • ensure confidentiality clauses are sound and that employee access to client information following employment is quickly rescinded following termination.

If you have any questions about employment law, human rights, workplace investigations, human resources, or immigration law. Contact Bridge Legal & HR Solutions at 647-794-5442 or at admin@bridgelegalhr.ca. We are here to bridge the gaps for you.

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