Employer Tries To Establish Fiduciary Duty Upon Former Employee feature image

Employer Tries To Establish Fiduciary Duty Upon Former Employee

We often hear about employees who have non-compete clauses in their contracts, preventing them from working for a competitor of their employer for a set period of time after their employment ends. Do employees working without such a stipulation in their contract have any obligation to not compete with their employer once they leave? A recent decision from the Ontario Superior Court of Justice addressed this question

Background

The employee had worked for her an insurance brokerage (the “previous employer”) for 23 years. She retired from her position as assistant manager stating she wanted to have more personal time. The very next day she had a change of heart. However rather than contacting her previous employer, she reached out to a competing brokerage (the “new employer”) to inquire about a job. She was hired and began working for the new employer within a week. Over time a significant amount of the previous employer’s clients transferred to the new employer, following the employee. The previous employer sued for breach of contract, interference with contractual relations, and breach of fidelity and fiduciary duty.

Breach of contract

At the outset of the trial there was a dispute over whether an employment contract had ever been signed. The employee claimed there was a contract, and that any mention of a restrictive covenant was purposefully removed from the contract. The previous employer said there was no contract. The employee was eventually able to produce to contract agreements dating back to October 1997. They had no restrictive covenants in them. Either way the judge determined there had been no restrictive covenant in place.

A fiduciary duty

The previous employer claimed that in the event there was  no restrictive covenant, the employee still owed fiduciary obligations to them. The court stated that a fiduciary duty does not exist just for the directors or top management of a company. In looking at the evidence, though, the court found there to be no fiduciary duty in place even though the employee was a manager.

There was no formal management structure in place. The previous employer was owned by a married couple, and everyone else acted as a sales person or customer service representative, etc. While the employee’s position was that of “assistant manager” it also listed her as a broker. The employee claimed the assistant management title was given to her for PR reasons and that it did not change her fundamental day-to-day duties. The previous employer was unable to contradict the employee’s claims that she had no management duties. Her primary responsibility was to sell insurance policies, and she was not the only one to do so. While she did work for the former employer for a long period of time, the trust established by that alone is not enough to create a fiduciary duty. Finally, the former employer failed to demonstrate that the employee had some unique function or knowledge gained through her employment that made her indispensable.

The court summarized its position by writing,

“When looked at with common sense, although (the employee) was a long-time and no doubt valued employee with (the former employer), she was fundamentally an ordinary salesperson and customer service representative with some supervisory role, who due to her length of time there had a closer working relationship with (the owners) than others.  But this falls significantly short of being in top management or a key employee.  Her duties and responsibilities are not such that one could reasonably characterize her as essential to the (previous employer’s) business.

The team at HMC Lawyers has over 130 years of litigation experience and have handled countless disputes around contracts and agreements stemming from the workplace. We provide our clients with insightful legal advice and personal service that speaks to their specific needs. If you are an employer or employee with questions about a confidentiality or non-competition agreement, please call us at 1-800-480-3534 or reach us online to see how we can help you today.

 

 

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