Fiduciary Duties of Senior Employees: When Your Job Comes with Extra Obligations

The Ordinary Duty of Loyalty

Every employee owes a duty of loyalty to their employer during the term of employment. This duty, implied into every employment contract by the common law, requires the employee to act in the employer's interests during working hours, to avoid conflicts of interest, to refrain from competing with the employer while employed, and to protect the employer's confidential information.

The duty of loyalty was described by the Supreme Court of Canada in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, in which the Court held that employees owe a duty of good faith and fidelity to their employer. The duty requires the employee to be honest, to avoid competing with the employer, and to not divert business opportunities during the term of employment.

The ordinary duty of loyalty ends when the employment relationship ends. A former employee who has no restrictive covenant in their employment agreement is generally free to compete with the former employer, solicit the former employer's clients, and use their general knowledge and skills — provided they do not misuse confidential information or trade secrets.

The Fiduciary Duty: Something More

Some employees owe a fiduciary duty — an obligation that is more extensive than the ordinary duty of loyalty and that can survive the end of the employment relationship. The fiduciary duty imposes obligations of utmost good faith, loyalty, and avoidance of conflicts of interest.

The Supreme Court of Canada established the framework for fiduciary duties in employment in Canadian Aero Service Ltd. v. O'Malley, [1974] SCR 592, in which the Court held that senior officers and directors of a corporation owe fiduciary duties that prohibit them from diverting corporate opportunities for personal gain. The Court held that the fiduciary relationship arises from the position of trust and confidence occupied by the fiduciary.

Who Is a Fiduciary?

Not every senior employee is a fiduciary. The fiduciary status depends on the nature of the relationship, not the title. The Supreme Court in Frame v. Smith, [1987] 2 SCR 99, identified three characteristics of a fiduciary relationship: the fiduciary has scope for the exercise of discretion or power, the fiduciary can unilaterally exercise that power or discretion to affect the beneficiary's legal or practical interests, and the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary.

In the employment context, courts consider whether the employee had the ability to exercise discretion affecting the employer's interests, the degree of trust reposed in the employee, the employee's access to confidential information, the employee's authority to bind the employer, and the extent to which the employer was vulnerable to the employee's self-interested conduct.

Likely fiduciaries: Chief executive officers, chief financial officers, chief operating officers, managing directors, senior partners in professional firms, key salespersons who control client relationships, and employees in positions of significant trust with wide discretionary authority.

Likely non-fiduciaries: Junior and mid-level employees, employees in purely operational roles, employees who execute tasks under close supervision, and employees without significant decision-making authority.

The analysis is always fact-specific. A "director" of a small company who functions as the sole salesperson with complete autonomy over client relationships may be a fiduciary. A "vice president" at a large bank whose title reflects seniority rather than authority may not be.

The Obligations of a Fiduciary Employee

A fiduciary employee's obligations go beyond the ordinary duty of loyalty in several important respects:

No Conflict of Interest

The fiduciary must avoid placing themselves in a position where their personal interests conflict with their duty to the employer. This obligation is strict — the fiduciary must not only avoid actual conflicts but must avoid situations that create the appearance or possibility of conflict.

A senior employee who invests in a company that competes with the employer may be in breach of the no-conflict rule, even if the investment does not affect their work performance. The potential for divided loyalty is sufficient.

No Profit from Position

The fiduciary must not use their position to obtain a personal benefit at the employer's expense. This obligation was at the heart of the Canadian Aero decision, where the defendants used their positions to divert a corporate opportunity to a company they controlled.

The no-profit rule applies broadly. A senior employee who uses insider knowledge to make personal investments, who directs business to a company in which they have a hidden interest, or who takes advantage of a business opportunity that properly belongs to the employer is in breach.

The Corporate Opportunity Doctrine

A fiduciary employee who becomes aware of a business opportunity during the course of their duties must present that opportunity to the employer rather than pursuing it personally. The corporate opportunity doctrine prevents fiduciaries from diverting opportunities that the employer would reasonably be expected to pursue.

The doctrine applies even after the employment relationship ends — at least with respect to opportunities that the fiduciary learned about during employment. A senior employee who resigns and immediately pursues a deal they learned about while employed may be in breach of their fiduciary duty, even if their employment agreement contains no restrictive covenant.

Disclosure Obligations

A fiduciary has an affirmative obligation to disclose information that is relevant to the employer's interests. This includes disclosing conflicts of interest, disclosing business opportunities, disclosing the misconduct of other employees (if discovered), and disclosing their own intention to leave and compete, in certain circumstances.

The disclosure obligation is one of the most significant practical differences between fiduciary and non-fiduciary employees. An ordinary employee who decides to leave and start a competing business has no obligation to tell the employer of their plans (provided they do not begin competing while still employed). A fiduciary employee may have such an obligation — particularly if their departure will involve the diversion of clients, employees, or business opportunities.

Post-Employment Fiduciary Duties

The most controversial aspect of fiduciary duty in employment law is whether and to what extent the duty survives the end of the employment relationship.

The general principle is that fiduciary duties attach to the relationship, and when the relationship ends, the duties end. But there are important exceptions:

Duties related to confidential information survive indefinitely. A fiduciary employee who obtained confidential information during employment cannot use or disclose that information after employment ends.

Duties related to corporate opportunities survive for a reasonable period after employment ends — at least with respect to opportunities the fiduciary learned about during employment.

Duties related to client relationships may survive for a reasonable period, particularly where the fiduciary cultivated those relationships using the employer's resources and goodwill.

The duration of post-employment fiduciary duties is not fixed. Courts assess the circumstances, including the nature of the fiduciary relationship, the type of information or opportunity at issue, and the time elapsed since the employment ended. A reasonable transition period — during which the fiduciary must not exploit their former position — is typically implied.

Remedies for Breach of Fiduciary Duty

The remedies for breach of fiduciary duty are more extensive than the remedies for breach of the ordinary duty of loyalty:

Disgorgement of profits. The employer can require the fiduciary to disgorge (return) all profits made through the breach of fiduciary duty. This remedy is not compensatory — it does not depend on the employer proving a loss. The fiduciary must surrender the gain, regardless of whether the employer was harmed.

Accounting. The employer can require the fiduciary to provide a full accounting of all activities related to the breach. This accounting obligation is discovery-like in its scope and compels the fiduciary to reveal the full extent of their self-dealing.

Injunction. The court can issue an injunction preventing the fiduciary from continuing to engage in the breaching conduct — including an injunction preventing them from soliciting clients, using confidential information, or pursuing diverted corporate opportunities.

Compensatory damages. In addition to disgorgement, the employer can claim compensatory damages for any loss suffered as a result of the breach.

Constructive trust. The court can impose a constructive trust over any property or assets acquired by the fiduciary through the breach. This means the property is held for the employer's benefit, not the fiduciary's.

Practical Implications for Senior Employees

If you are a senior employee contemplating a career move, understanding your potential fiduciary status is critical:

Assess whether you are likely a fiduciary. Consider the degree of trust your employer has placed in you, the scope of your discretion and authority, your access to confidential information and client relationships, and your ability to affect the employer's business interests through your own actions.

Do not divert opportunities. If you learn about a business opportunity during your employment, present it to your employer. Do not pursue it personally or through a company you control.

Do not recruit while employed. If you are planning to leave and start a competing business, do not recruit your employer's employees while you are still employed. This is a breach of fiduciary duty (and likely a breach of the ordinary duty of loyalty as well).

Disclose conflicts. If you have personal financial interests that conflict with your employer's business, disclose them. The failure to disclose a conflict is itself a breach of fiduciary duty.

Get legal advice before leaving. The line between legitimate competition and breach of fiduciary duty is fact-specific and consequential. A brief consultation with an employment lawyer before you resign can prevent costly mistakes.

The fiduciary duty is not a trap — it is a consequence of the trust your employer has placed in you. Understanding the obligation allows you to honour it while planning your career on your own terms.