Fiduciary Duties Restrict Departing Key Employees (even with no Written Agreement)

Generally, unless there are express contractual terms restricting competition or solicitation, former employees are permitted to use their skills, knowledge and experience to compete with their former employer, including by soliciting the employer’s customers and employees following termination of employment. Such competition may not involve using the employer’s confidential information, however. By way of exception, a few top employees may be considered “fiduciaries” who owe implied duties to their employer following termination.

The factors that are considered in determining fiduciary status can be summarized as follows:

1. The employee’s knowledge of confidential information and relationships with customers, employees and suppliers;
2. The employee has scope for the exercise of some discretion or power;
3. The employee can unilaterally exercise that power so as to affect the employer’s legal or practical interests; and
4. The employer is peculiarly vulnerable to or at the mercy of the person holding the discretion or power.

Typically, only senior executives are found to be fiduciaries, but some cases in some provinces have held lower level employees with uniquely strong customer relationships may qualify. Fiduciaries are prohibited from taking advantage of their power over the employer for a reasonable period of time. The full scope of fiduciary post-employment duties is not clear, but includes refraining from soliciting customers and employees or diverting a (non-public) maturing business opportunity they developed or learned of through their employment, as well as using employer confidential information.

The fiduciary obligations above only continue after departure for as long as is “reasonable”, which must be determined on a case-by-case basis. Generally, the period should be as long as necessary to allow the former employer to take steps to protect their interests (e.g to contact customers and suppliers to retain their loyalty). This may be up to one year, but depends on the circumstances on the case, such as the nature of the relationship between the employer and customer.

It is worth noting that where the employer wrongfully dismisses a fiduciary, some courts have held that the fiduciary is released from their post-employment obligation not to solicit customers and employees. This remains a live issue, as other courts have disagreed.

If you have concerns about a current or former employee or fiduciary, you can contact us at:

Geoffrey Howard:         ghoward@howardlaw.ca

604 424-9686

Sebastian Chern:          schern@howardlaw.ca

604 424-9688