While operating their businesses, employers often need to empower certain employees with information and authority to assist with day-to-day operations. In doing so, these employees become key employees and essential to the business.
Employers necessarily place a great deal of trust in these key employees to not use their authority to harm business operations. Certain employees will be recognized as fiduciaries, which requires them to uphold certain duties to their employer before, during, and after dismissal.
What are Fiduciary Duties?
A fiduciary duty requires one party to act in the best interest of another person or entity, and is an implied term of agreements where certain relationships exist.
In businesses, while directors and officers have a fiduciary duty to the company, certain employees must also act in the company’s best interest.
Within the fiduciary employee’s duty to act in the company’s best interest lies the duty of good faith and loyalty, the duty to not misuse the confidential information, and the duty not to abuse their authority.
More specifically, fiduciary employees must not use their intimate knowledge of the employer’s confidential affairs to compete with the employer’s business interests or otherwise divert its business opportunities, and must not interfere with the employer’s relationship with its clients.
The fiduciary nature of their duties to the company is not found in any particular position, but rather, the duties and responsibilities the employee has as part of their role. These duties continue after the fiduciary employee’s employment ends.
What makes an Employee a Fiduciary?
A fiduciary employee is one who who has a uniquely powerful role in the business. Employees may be considered fiduciaries by the courts through analysis of the degree of trust and reliance between the employer and the employee, as well as the vulnerability of the employer due to that reliance. If that vulnerability arises from the employee’s power and control over the employer’s affairs due to the employment relationship, then it is more likely that the employee will be deemed a fiduciary by the courts.
A three-part test to determine whether there is a fiduciary relationship can be found under the case of Lac Minerals Ltd v International Corona Resources,  2 SCR 574:
- The fiduciary is able to exercise some discretion or power;
- The fiduciary can unilaterally use their discretion or power to affect the beneficiary’s legal or practical interests; and
- The beneficiary is specifically vulnerable to the fiduciary holding the discretion or power.
Breaches of Fiduciary Duties
Some of the most common breaches of fiduciary duty involve conflicts of interest or confidentiality breaches with respect to a business transaction by the fiduciary employee.
To prove an employee has breached their fiduciary duty, courts will evaluate the amount of knowledge the fiduciary employee had concerning the employer’s affairs that led to the breach. If the fiduciary employee is alleged to have seized their employer’s business opportunity, the courts will evaluate the nature of the business opportunity and the closeness of the fiduciary to it. The timing of the breach will also be evaluated to determine whether a given employee breached their fiduciary duty.
If an employee is found to have breached their fiduciary obligations, the employer may be entitled to a wide range of remedies referred to as equitable relief. Such remedies include court orders to compensate the employer for any profits gained through the breach, an injunction against taking any further action, and a constructive trust for property that was acquired through the breach of fiduciary duty.
If the employee is alleging wrongful dismissal, employers should exercise caution when making allegations of a breach of fiduciary duty. If a court finds that there was no factual basis for the allegations, the employee may be entitled to punitive damages or an increased cost award. To mitigate this risk, employers who become aware of the misconduct of a fiduciary employee should conduct a thorough investigation regarding the facts.
The management of fiduciary employees requires a strong grasp of the facts concerning their role and the applicable laws surrounding their duties. These relationships are best outlined through well-drafted and specific contracts which protect the employer’s business while allowing for the freedom to expand on future opportunities. Competent and practical legal professionals can assist you in developing and working with fiduciary relationships within your organization.
Whether you are an employer or an employee looking for assistance with your disputes or employment relationships, our team of experienced employment lawyers at Achkar Law can help. Contact us by phone at 1 (800) 771-7882, or email at firstname.lastname@example.org, and we would be happy to assist.
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Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call 1-(800)771-7882, or email email@example.com.
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