Breach of Fiduciary Duty
A fiduciary duty is when an employee has an obligation to act and make decisions honestly, in good faith with a view to the best interest of the employer, not in their own personal interest.
Some employees, such as executives and other high-level management, owe a fiduciary duty to their employer. However, whether an employee owes their employer a fiduciary duty will largely depend on the specific nature of their employment.
Whether a fiduciary duty exists will depend on:
- An employee’s position at the company. For example, management that are responsible for running the company are more likely to have a fiduciary duty;
- How much authority and power an employee has; and
- If the employer places trust and reliance in the employee and is vulnerable to the employee.
An employee with a fiduciary duty has special obligations to their employer, such as avoiding conflict of interest.
If an employee breaches their fiduciary duty, they not only risk termination for cause, but also disgorgement of profits made through that breach. Common examples of breaches of fiduciary duty include: soliciting or stealing clients from an employer, working with or for the competition, or misappropriating funds. Generally, an employee risks breaching their fiduciary duty if they act in their own self-interest to the detriment of their employer.
Employers can take steps to protect themselves from fiduciary breaches by including non-compete and non-solicitation clauses in their employment agreements. Non-compete clauses prevent an employee from being employed by a competitor for a set amount of time after their employment is terminated.
It is important to note that non-compete clauses between employers and their employees are banned in Ontario, with only two exceptions: chief executives and business owners. Even when a non-compete clause is allowed, they must be carefully drafted because, if not, they may be unenforceable.
In Ontario, if you have not revised these clauses since December 2, 2021, when the Working for Workers ACT 2021 became law, you are at risk. We are here to assist in assessing your risk. Contact us today.
Non-solicitation clauses are more likely to be found enforceable. They serve to prevent an employee from soliciting an employer’s clients to take their business away from the employer or solicit other employees to leave the employer.
Hum Law Firm has experience dealing with breeches of fiduciary duty, both in the employment and business context. We are here to assist you protect your business.