Williams HR Law LLP

FIDUCIARY OBLIGATIONS VERSUS THE DUTY OF CONFIDENTIALITY: POTENTIAL IMPACTS ON EMPLOYERS

July 12, 2023

The recent case of England Securities Ltd. V. Ulmer [Ulmer], decided by the British Columbia Court of Appeal (“BCCA”), highlights the distinction between fiduciary obligations and the duty of confidentiality in the employment context. This decision has potential implications for employers, particularly those whose confidential information may have been compromised by an employee.

Background

The employee had worked for the employer from 2011 until 2017, mostly as an Investment Relations Manager. The employer’s business involved purchasing revenue-producing properties and transferring them to investors. The employee’s primary duties consisted of providing investment status updates to the employer’s investors and their advisors. Although not responsible for marketing or client recruitment, the employee had access to client lists and other proprietary information.

Between 2014 and 2015, the employer sold many of its investment properties and prepared for retirement. During this time, the employee was responsible for communicating with investors regarding the distribution of funds.

Aware that his employer was preparing for retirement, the employee engaged a competitor regarding potential employment opportunities and used his knowledge of the employer’s investors to market his skills. The employee began work for the competitor in 2015, and with the knowledge of the employer, also continued to work with the employer part-time.

Simultaneously, there were ongoing negotiations for the competitor to purchase the employer’s investor-client list, which the employee was aware of. Although the negotiations did not result in a sale, the employee actively promoted the competitor’s products to investors, arranged meetings between investors and the competitor, and shared investor contact information with the competitor.

The employer brought an action against the employee for breach of fiduciary duty, but the trial judge dismissed the action, stating that the employee was not a fiduciary. The employer then appealed the decision to the BCCA.

Fiduciary Obligations

A fiduciary obligation may arise when, due to the nature of the parties’ relationship, one party (the “fiduciary”) has a legal obligation to act honestly and in good faith, with a view to the best interests of the other party (the “beneficiary”).

The test for determining whether a relationship gives rise to fiduciary obligations is derived from the Supreme Court of Canada’s decision in Alberta v. Elder Advocates of Alberta Society, 2011 [Elder Advocates]. To establish a fiduciary obligation, three elements of the test must be met:

  1. The fiduciary has scope for the exercise of some discretion or power;
  2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and
  3. The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.

The Decision

The BCCA upheld the trial judge’s decision to dismiss the employer’s claim of a breach of fiduciary duty by the employee. Applying the test from Elder Advocates, the court found that the employee lacked sufficient authority and discretionary power in his role to make him a fiduciary. The court listed several characteristics of the employee’s working relationship with the employer to support this conclusion, including:

  • The employee’s duties became predominantly administrative from 2015 onwards;
  • The employee required his employer’s approval before publishing materials for investors;
  • The employee required the employer’s co-signature before authorizing payments to investors, and
  • The employee had no direct reports and lacked the authority to hire or fire other employees.

The court agreed with the trial judge in finding that although the employee had access to confidential information, this did not automatically make him a fiduciary. However, an employee’s unauthorized use of confidential information may be seen as a breach of a duty of confidentiality, which is an implied term in employment agreements encompassed by the duty of loyalty to one’s employer.

The employer may have been successful in arguing that the employee had breached his duty of confidentiality. However, the only question before the court was whether the employee breached his fiduciary obligations, and the court held that the trial judge had not erred in their decision to find the employee was not a fiduciary.

Takeaways

Ulmer reminds employers of the differences between fiduciary obligations and the duty of confidentiality, as well as the potential consequences of pursuing the wrong claim against an employee. Employers seeking to enforce an employee’s confidentiality obligations should keep these differences in mind and not assume that an employee will automatically owe fiduciary obligations simply because they have access to confidential information. Employers who wish to enforce an employee’s confidentiality obligations by means of litigation may be better served by pursuing an action for breach of confidentiality. Additionally, employers should establish clear expectations regarding confidentiality through the use of contracts and policies.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.

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