Legal Ease: More than an employee: The making of a fiduciary

Canadian law recognizes that certain employees have duties beyond the usual: they have fiduciary duty.

David BrownAll employees have contractual duties to their employers, including a duty to perform work to the best of their abilities, a duty to follow reasonable instructions and a duty of good faith and loyalty.

While these duties are true for all workers, Canadian law also recognizes that certain employees have duties beyond simply showing up on time, putting in a full day’s work and acting honestly vis-a-vis their employer. The responsibilities they hold, along with the unique relationship they have with their employer, may escalate their role to that of a fiduciary.

But what makes a fiduciary, and how are they different other employees?

Fiduciaries are usually (but not always) high level employees such as directors and upper management. By virtue of their position, they will generally have directing authority over the business and the power to guide the company.

Because of the inherent power associated with the position, the organization becomes vulnerable to abuse of authority.

This idea of vulnerability is central to fiduciary law, and as a result, at times even a lower level employee can be found to be a fiduciary.

Such has been the case of unsupervised liquor store cashiers stealing cash (581257 Alberta Ltd v Aujla, 2013 ABCA 16 (CanLII)), a bookkeeper writing fraudulent cheques to herself (South Nahanni Trading Company Ltd v Gravel, 2007 CanLII 30668 (ON SC)) and a bank teller misappropriating deposits.

In all of these cases, the three-step test for the creation of a fiduciary relationship was met:

i) The fiduciary had scope for the exercise of some discretion or power.

(ii) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.

(iii) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

Being identified as a fiduciary and the duty of “utmost good faith” towards their employer can have important implications on an employee.

In my experience, a breach of fiduciary obligations in employment law is most often argued in cases of unfair competition.

A common scenario arises with a high level employee with access to sensitive company information and client relationships.

If that employee uses insider knowledge (such as pricing, products, research and development) and client relationships to advance their own interests or the interests of a competing firm, the employer vulnerable to the breach of trust may apply to the court for  an injunction and damages.

Another important implication of being identified as a fiduciary is that it can reverse the onus of proving damages.

However, once the fraud or breach of fiduciary duty is established, and the plaintiff has shown that it has made all reasonable efforts to determine the amount lost, then the evidentiary burden shifts to the defendant to disprove the amount of the loss and the cause of the loss. Needless to say, this creates a significant reversal in the burden of proof.

As a final word of caution, not every employee who leaves to work for a competitor or steals office supplies becomes a fiduciary.

Whether an employee is a fiduciary or not is always fact specific and an allegation of breach of trust is sure to be hotly disputed.

Identifying an employee as a fiduciary certainly also doesn’t replace a professional non-competition/non-solicitation agreement, effective company policies and appropriate oversight over employee activities.

 

David M. Brown is a lawyer with the Kelowna law firm Pushor Mitchell LLP.

dbrown@pushormitchell.com