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When are Employees Considered Fiduciaries?

What is a fiduciary?

A fiduciary is a person who is required to act for the benefit of another person, the beneficiary, on all matters within the scope of their relationship. Fiduciary employees owe duties that go beyond the duty of fidelity owed by regular employees. Fiduciary employees owe their employers heightened duties, including a duty of loyalty, a duty of good faith, and a duty of honesty. They are expected to prioritize their employer’s best interests above their own. Further, fiduciary employees are obligated to avoid conflicts between their self-interest and their employer’s interests. Fiduciary duties may be found to continue after the termination of the employment relationship.

Who is a fiduciary employee?

All employees are not fiduciaries, as reflected in the Court’s decision in Canadian Industrial Distributors Inc. v. Dargue, 1994 CanLII 7319 (ON SC), where the Court stated, “it is clear that the generic relationship between employer and employee does not per se give rise to fiduciary responsibilities.” The law does not lightly impose a fiduciary duty on every employee or manager due to the demanding nature of the duties required of fiduciaries. Rather, determining whether an employee is a fiduciary requires a contextual analysis of the nature of the employee’s duties and the relationship between the employee and employer.

Courts rely on the three-part test articulated in Lac Minerals Ltd. v. International Corona Resources, [1989] 2 SCR 574 to determine whether a fiduciary relationship can be found between an employee and an employer, which asks whether:

  1. The fiduciary is able to exercise some discretion or power;
  2. The fiduciary can unilaterally use their discretion or power to affect the beneficiary’s legal or practical interests;
  3. The beneficiary is specifically vulnerable to the fiduciary holding the discretion or power.

All of these characteristics are not required for a fiduciary-beneficiary relationship to be established, and the presence of all of these ingredients will also not necessarily result in the formation of a fiduciary relationship. Courts will undertake a comprehensive contextual analysis of the employee’s duties and their relationship with the employer in determining whether a fiduciary relationship exists. For courts to find a fiduciary relationship exists between an employee and employer, the most important factors are the extent to which the employer is dependent or vulnerable on the employee, and also whether the employer has reposed trust and confidence in the employee on a continual basis, relying on the employee in reaching business decisions.

Employees in higher management positions, such as senior executives and directors are most likely to be found to owe a fiduciary duty to their employer due to the amount of control and decision-making power these employees often have over the employer’s operations. However, courts have repeatedly indicated that they will look beyond an employee’s title to determine whether employees qualify as a fiduciary or not. For instance, in Tomenson Saunders Whitehead Ltd. v. Baird, [1980] O.J. No. 386, the Court analyzed the employee’s duties and concluded that he was merely a sales representative despite his title of Vice President. As such, despite his senior title, the employee was not found to meet the requisite criteria to establish him as his employer’s fiduciary.

While employees in higher management are more likely to qualify as fiduciaries, this does not mean that non-managerial employees will not be found to owe their employers a fiduciary duty. In certain cases, lower-level managers and non-managerial employees may be found to owe their employer a fiduciary duty, especially if they are found to be “key employees”. To qualify as a “key employee”, an employee’s position and responsibilities must be essential to the employer’s business and make the employer particularly vulnerable to competition upon their departure.

For example, in 581257 Alberta Ltd v Aujla, 2013 ABCA 16, the respondent employees were found to be fiduciaries of the appellant liquor store in their role as cashiers and shelf-stockers. The Court found that the respondent employees owed a fiduciary duty to their employer with respect to the handling of the employer’s funds, as they were often left in the store alone with keys to the till. As such, the employer was found to be vulnerable, reliant, and dependent on the employees to protect and manage the funds in the till. In its reasoning, the Court also relied on the fact that the employer was a small company with few employees and limited oversight of its few employees, demonstrating the fact-specific nature of the fiduciary employee analysis.

Similarly, in HRC Tool & Die Mfg Ltd v Naderi, 2016 ABCA 334, the Court found that the respondent employees, a machine operator and a purchasing agent, were the appellant employer’s fiduciaries. The Court found that the employer remained absent for extended periods of time, and that the employer reposed trust and confidence in the employees with regards to the day-to-day management of the business. As such, these employees were found to be the employer’s fiduciaries and were prohibited from using the employer’s confidential client information to compete with their employer.

At Soni Law Firm we have a proven record of excellence. We are here to assist both employers and employees in protecting and enforcing their rights. We would be pleased to represent you in your employment dispute. Contact us today to learn more about employees’ fiduciary duties. We offer free consultations and are here to listen.

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Rahul founded Soni Law Firm, a boutique employment, labour, and human rights law firm, with the goal of taking his Downtown Toronto litigation experience and making it accessible to Ontario’s Main Street employees and employers.