Fiduciary Duties and Fiduciary Employees

While operating their businesses, employers often need to empower certain employees with information and authority to assist with day-to-day operations. These employees become key to the business, holding positions of significant trust. Certain employees are recognized as fiduciary employees in Ontario, which requires them to uphold specific fiduciary duties to their employer before, during, and after their employment.

What Are Fiduciary Duties in Ontario?

Fiduciary duties are obligations that require one party to act in the best interest of another person or entity, forming an implied term of agreements where certain relationships exist. In business, while directors and officers are typically known to have fiduciary duties, certain employees must also act in the best interest of the company as fiduciary employees.

These fiduciary duties include the duty of good faith and loyalty, the duty not to misuse confidential information, and the duty to avoid abusing their authority. Specifically, fiduciary employees must not use their intimate knowledge of the employer’s confidential affairs to compete with the employer’s business interests or divert business opportunities. Additionally, fiduciary employees must not interfere with the employer’s relationships with clients.

The fiduciary nature of an employee’s duties is not tied to a specific job title but rather to the responsibilities and trust inherent in their role. Importantly, these fiduciary duties continue even after the fiduciary employee’s employment has ended.

What Defines a Fiduciary Employee in Ontario?

A fiduciary employee in Ontario is one who holds a uniquely powerful role within the business. Courts may consider an employee to be a fiduciary through an analysis of the degree of trust and reliance placed on them by the employer, and the vulnerability of the employer due to that reliance. If the employer’s vulnerability arises from the employee’s power and control over critical business affairs, the employee is more likely to be deemed a fiduciary by the courts.

The case of Lac Minerals Ltd v International Corona Resources, [1989] 2 SCR 574, outlines a three-part test to determine whether a fiduciary relationship exists:

• 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 that discretion or power.

Common Breaches of Fiduciary Duties

Breaches of fiduciary duties often involve conflicts of interest or confidentiality breaches related to a business transaction by the fiduciary employee. To prove that a fiduciary employee has breached their duties, courts will examine the extent of the employee’s knowledge concerning the employer’s affairs that led to the breach.

If a fiduciary employee is alleged to have seized their employer’s business opportunity, the courts will evaluate the nature of that opportunity and the fiduciary employee’s closeness to it. The timing of the breach is also scrutinized to determine if the employee violated their fiduciary duties during or after their employment.

When a fiduciary employee breaches their duties, the employer may be entitled to equitable relief. Remedies include compensation for any profits the fiduciary employee gained through the breach, injunctions against further actions, and constructive trusts over property acquired through the breach.

Employers should exercise caution when making allegations of a breach of fiduciary duties, particularly if the employee is also claiming wrongful dismissal. If a court finds no factual basis for the allegations, the employer may face punitive damages or an increased cost award. To mitigate these risks, employers should conduct thorough investigations before taking action against fiduciary employees.

Managing Fiduciary Employees and Their Duties

Effective management of fiduciary employees requires a clear understanding of their roles and the fiduciary duties that apply. These relationships should be clearly defined through well-drafted contracts that protect the employer’s business interests while allowing for future growth and opportunities. Legal professionals with experience in employment law can assist in developing and managing fiduciary relationships within your organization.

Contact Achkar Law

Whether you are an employer or an employee seeking assistance with disputes or employment relationships, our team of experienced litigation lawyers at Achkar Law can help. We specialize in navigating the complexities of fiduciary duties and can provide the guidance you need to protect your interests.

Contact us by phone at 1 (800) 771-7882, or email at [email protected], and we would be happy to assist.