Fiduciary Duties May Depend On How Former Employees Are Treated feature image

Fiduciary Duties May Depend On How Former Employees Are Treated

The obligations one has to a former employer after they exit the employment relationship can vary based on the type of position the employee held. For example, employees who have senior positions within a company may qualify as “fiduciary employees” which means they may be limited in how soon they can work for a competitor and may not be able to solicit any of their former employee’s clients. However, as seen in a recent decision from Ontario’s Superior Court of Justice demonstrates that if a fiduciary employee is wrongfully terminated there may be a corresponding reduction in the employee’s fiduciary duty.

The facts

The employee co-founded the company with the employers in 2008. He was the primary point of contact for a client which represented over 50% of the company’s income. In 2016, after a successful fight against cancer, the employee was notified that the employers wished to restructure the business, including its shareholder agreements. The relationship between the three parties had begun to deteriorate by this point. In early 2017 the employee complained he was note receiving enough support in his work with the large client. Around this same time an anonymous source told the employers that the employee was planning on leaving the company and taking the client with him. The employers confronted the employee upon hearing this.

The employers said the employee made some form of admission about the truth of the allegation at their meeting. The employee denies doing so, and alleges the employers fabricated the anonymous call in an attempt to provoke him.

The relationship between the three continued to worsen. The employee testified that in June 2017, one of the employers “began to provide critical comments on (an) already-submitted proposal. They wanted a higher margin.  They were critical of aspects of the proposal relating to the (independent contractors). The back and forth that ensued caused resentment on (the employee’s) part to what he characterized as interference to grow to the boiling point.” This caused the employee to threaten that he was going to clean out his desk and that the client would not be paying an invoice to the company.

The day following the incident the employee, having calmed down, wrote to the employers to state “this project will continue as is. I am going to take the high road and clean the slate.” However the employers were not willing to make amends. They wrote “there is no going back” and that they had received legal advice which “supports your dismissal both as an officer and employee for cause and grounds for suing you for misappropriating the company’s goodwill represented by (the client).”

On July 21, 2017, the employee was notified that he was no longer an owner or officer of the company and that he was being moved to “account manager.” The employee left the company, and when the client learned of this, it notified the employers that it tended to move its business to follow the employee.

The employee brought a motion seeking fair market value on the purchase of his shares, while the employers brought a counter motion alleging the employee had breached his fiduciary duty by stealing the business of their largest client.

The court’s decision

The court recognized that fiduciary employees do typically have a duty not to steal clients from their former employers. However, the court also stated that “restrictions on soliciting clients of the corporation places upon a fiduciary who is unfairly terminated by the corporation will not be as strict as those applicable to a fiduciary who leaves voluntarily

In this case, the court found the employee to have been treated unfairly. In addition, it found that the client had moved its business because the expertise provided by the employee was no longer available at the company. The way the court looked at it, the employee did not steal the client, rather than client decided to take its business to the employee.

The employment law team at HMC Lawyers provides our experience with forward-thinking consultation to proactively address the legal implications of a termination. We provide exceptional service at reasonable rates designed to save you money while you receive great representation. To make an appointment and get advice about an employment matter, including wrongful or constructive dismissal claims, call 1-800-480-3534 or contact us online. We represent clients in Calgary, throughout Alberta, and across Western Canada.

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