Post-Employment Fiduciary Obligations

Sometimes, employees are required to sign Non-Competition Agreements either at the commencement of their employment, or at the termination of it. But, if no such agreement was ever signed, does that mean that a departing employee has the right to compete head-on with their former employer?

At common law, there exists the concept of "fiduciary obligations". These are obligations of good faith that attach to certain types of employees. A "fiduciary obligation" has been described as a duty not to act unfairly towards an employer. As stated in Wallace Welding Supplies Ltd. v. Wallace (1986 Ontario case). "…the former employee in competing with his former employer, as he has a right to do, must not exercise an advantage that he may have, by virtue of his former employment".

A breach of a fiduciary duty following the termination of employment will be actionable regardless of whether the former employer suffers damage. The cases suggest that the nature of the corporate opportunity that needs protection must be examined. For example, it has been held that a corporate opportunity must be an opportunity or advantage that is available to the former employer and not readily available to the competition.

A fiduciary must not use specific knowledge of a former employer and its customer so as to interfere with that relationship. A fiduciary however may be permitted to use "know how" that he/she acquired at the former employment. A fiduciary may not make direct solicitations upon his/her former employer's customers in an attempt to persuade them from discontinuing their relationship with the former employer and commencing a relationship with their new company.

The common law principles relating to fiduciary obligations are clear that a fiduciary may utilize general advertisements to the public to attract customers. A fiduciary such as lawyer, accountant or other professional, who has a personal relationship with a customer, has the right to advertise his or her move to a new firm. In fact, this type of employee may have ethical obligations to inform their clients or customers of where they are moving. In doing so, courts generally do not find a breach of fiduciary obligation.

Where a fiduciary has signed a non-competition and/or non-solicitation agreement, the courts have been influenced when deciding whether to give effect to the agreement. It is wise therefore, to seek legal advice before signing such a document.

This article is meant to alert the reader to the broad issue of fiduciary obligations. The information contained herein is a gross over-simplification of the law surrounding this area. If you are faced with having to sign a non-competition agreement or you think you may be a fiduciary, please call me to discuss your situation. This is one area of employment law that is very fact driven and about which, general comments should not be made.