In Canadian employment law, not all employees or dependent contractors are alike. Some, by virtue of their high position with the employer’s organizational hierarchy, are a type of employee that owe greater obligations to their employer than other employees. These are fiduciary employees, and they owe fiduciary obligations to their employers that go above and beyond what is typically owed in the employee-employer relationship (i.e., the implied duty of fidelity that all regular employees owe).
A relatively recent decision of the Saskatchewan Court of Queen’s Bench, Impact Security Group Inc. v Brown, provides a useful summarization of the law surrounding fiduciary employees.
This case concerned two former employees of Impact Security: Mr. Brown and Mr. Zanger. Mr. Brown was once Impact Security’s Regional Manager for Saskatchewan, whereas Mr. Zanger was their Regina Branch Manager. Evidently, both former employees held senior positions within the employer’s organization.
Both employees left the company in April, 2021 to set up a competing company called Executive. According to Impact Security, the two employees had used the company’s confidential information while still employed to solicit future customers to Executive. In doing so, Impact Security argued they breached their fiduciary obligations to Impact.
Distinguishing Fiduciary Employees from Regular Employees
In order for the employees to breach their fiduciary obligations to the employer, they must first be found to have been fiduciaries. In addressing this issue, the Court provides a helpful summary of the principle.
At common law, all employees owe a duty of fidelity to their employers. However, employees in a fiduciary relationship with their employer owe higher duties, including duties of loyalty, good faith, and avoidance of conflicts of interest. Fiduciary employees cannot solicit their former employer’s customers, nor use the employer’s confidential information to the employee’s own advantage for a reasonable time following the end of their employment.
Determining whether or not an employee is a fiduciary requires a contextual analysis. A fiduciary relationship will arise where:
- (a) the fiduciary has the authority to exercise power or discretion;
- (b) the power or discretion is exercised unilaterally over the beneficiary (i.e., the employer), thereby affecting the beneficiary’s legal or practical interests;
- (c) the beneficiary is peculiarly vulnerable to, or at the mercy of, the fiduciary; and
- (d) the fiduciary has undertaken to act in the best interests of the beneficiary and to forsake the interest of all others in favour of the beneficiary with regard to the specific legal or practical interest at stake.
These four indicia of fiduciary relationships are often found to exist in employment relationships. In applying these indicia to the employment context, courts often consider a number of other factors, including:
- 1) level of responsibility;
- 2) ability to unilaterally exercise delegated authority to effect the employer’s legal and economic interests;
- 3) degree of contact with customers and/or suppliers;
- 4) knowledge of customer lists;
- 5) pricing information and other information key to the employer’s business, and
- 6) the employer’s vulnerability to actions taken by the employee.
It is ultimately a question of fact whether or not an employee is a fiduciary. Courts have been warned, however, to not be too quick to conclude that an employee is a fiduciary where the employee’s job is less than that of a senior managerial or directorial status.
Were Mr. Brown and Mr. Zanger Fiduciary Employees?
Mr. Brown held a very senior position within the company – he was, effectively, the face of the business. He possessed significant discretion when it came to hiring and supervising employees. His familiarity and relationship with many of Impact Security’s clientele leaves Impact in a potentially vulnerable position, especially given that many of those clients may move away from Impact Security and towards Mr. Brown’s new business. In considering all of this, the Court held that Mr. Brown was a key employee who did owe fiduciary obligation to his former employer, Impact Security, even following his departure. Furthermore, the Court found that Mr. Brown did indeed breach his fiduciary obligations by enticing some of Impact Security’s clients to leave and join his business instead.
On the other hand, Mr. Zanger did not hold a senior management position within the company. Mr. Zanger supervised employees but had no responsibility or control over finances or budgets or strategic planning whatsoever. For this reason, Mr. Zanger was found not to be a fiduciary.