What Is a Fiduciary Employee?

Employees Entrusted With Money, Key Secrets, Cheque Signing Ability, Special Authority, Among Other Things, May Be Legally Deemed As Fiduciaries With Duties That Require Acting With Exceptional Good Faith, Forthcoming Honesty, and Loyalty In Serving the Employer.

Understanding What Constitutes As Breach of Fiduciary Duty

Employment Contract Document The role as well as the duties of some employees involves an extra-special level of trust that require the employee to prioritize conduct that favours the employer and does so even after the employee leaves the employment.  A failure to act in the favour of the employer is referred to as a breach of fiduciary duty by the employee or the former employee.

The Law

The legal criteria for what defines whether an employee is a fiduciary was well explained within the case of Labrador Recycling Inc. v. Folino, 2021 ONSC 2195 wherein it was said:

[9]  There are three defining characteristics of a fiduciary employee: (i) the fiduciary has the scope for the exercise of some discretion or power; (ii) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; (iii) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power: Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99, at para. 60; GasTOPS Ltd. v. Forsyth, 2009 CanLII 66153 (Ont. S.C.), at para. 80.

[10]  In determining whether someone is a fiduciary, the court must look at the nature of the relationship between the parties, the job function and the responsibilities being performed. These are more determinate than the title held by the employee. “The varying degrees of trust, confidence and reliance given to the employee and the corresponding vulnerability or dependency of the employer to competition when the person leaves are the most pertinent factors in determining whether a fiduciary duty exists”: GasTOPS, at para. 81.

Employee As Fiduciary

The employee with fiduciary duties is required to act in good faith with forthcoming honesty and by showing loyalty towards the employer with a focus towards the best interests of the employer.  The employee as a fiduciary is required to avoid any conflict-of-interest, being circumstances or arrangements that may benefit the employee at the expense of the employer such as secret dealings, solicitation of colleagues or customers, among other concerns.

Interestingly, while upper level managers holding key business secrets and knowledge usually hold fiduciary roles, even employees in lower roles may be deemed to hold fiduciary duties.  Lower level fiduciaries may include a bookkeeper with cheque signing authority as was the case in South Nahanni Trading Company Ltd. v. Gravel, 2007 CanLII 30668 or even a cashier as was the case in 581257 Alberta Ltd v. Aujla, 2013 ABCA 16 and wherein such cases it was said:

[10]  In Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99 (S.C.C.) at p. 136, Wilson J. proposed a three-step analysis to guide the courts in identifying new fiduciary relationships, by identifying the following three characteristics common to such relationships: (1) scope for the exercise of some discretion or power; (2) that power or discretion can be exercised unilaterally so as to affect the beneficiary’s legal or practical interests; and, (3) a peculiar vulnerability to the exercise of that discretion or power.

[11]  In the present case, as the plaintiffs’ bookkeeper and authorized signatory for their bank accounts, Ms. Gravel had both discretion (to sign cheques) and power over the plaintiffs’ finances, albeit subject to oversight by the plaintiffs or their auditors or accountants. As is apparent from what Ms. Gravel did, she was in a position to exercise that power unilaterally to affect the plaintiffs’ interests, by taking their funds without their permission. The same facts support the conclusion that the plaintiffs had a peculiar vulnerability to the exercise of the discretion and power that they vested in Ms. Gravel. The mere fact that there may have been other employees with more senior or managerial responsibilities, does not negate the fact that Ms. Gravel’s duties had the three characteristics I have described.

[12]  The issue of whether an employee who was in a position to steal money from her employer was a fiduciary was addressed in the Alberta decision of Re McNabb, [1995] A.J. No. 196 (Q.B.). In that case, a bank teller stole from her employer. After she made an assignment in bankruptcy she argued that the liability to the employer on the judgment it obtained against her had been extinguished by reason of her assignment in bankruptcy. Master Funduk disagreed that the employee was a fiduciary, saying (at paras. 16, 17 and 19) as follows:

16.  The bankrupt was an employee of the Bank and she stole money from the Bank. An employer-employee relationship does impose obligations on the employee which are not limited to doing what the employee is hired to do.

17.  All that is necessary is that there be a fiduciary duty by the bankrupt to do or not do something to have the necessary “fiduciary capacity” for the issue. Clearly an employee who handles her employer’s money, in whatever form it is in, occupies a position of trust. That trust creates the fiduciary duty to deal properly with the employer’s money. Stealing the employer’s money is a breach of that fiduciary duty.

19.  In recent years there has been a willingness by the courts to expand the law and find fiduciary obligations where equity had not tred in the past. It is not a giant step to conclude that an employee has a fiduciary duty (created by a trust position where the employee handles the employer’s money) to deal properly with that money.

[13]  I agree with the foregoing comments. When Mr. Pinckard and South Nahanni gave Ms. Gravel signing authority over their bank accounts, they reposed trust and confidence in her to perform her duties in relation to their affairs in an honest and forthright manner. By giving her signing authority, they placed her in a position to exercise control over their assets. By her own admission, Ms. Gravel perpetrated a fraud or series of frauds, by preparing and signing cheques and converting the proceeds to her own use. In my view, on the facts of this case, she meets the three-part test set out by Wilson J. in Frame v. Smith, and was a fiduciary. Her actions constituted a breach of her fiduciary obligations.

[41]  The trial judge also went on to hold that the Employees were not in a fiduciary relationship with the Employer. She correctly commenced her analysis on this issue with reference to Canadian Aero Service Ltd v O’Malley, 1973 CanLII 23 (SCC), [1974] SCR 592 at 620, where the Supreme Court held that directors and senior officers of a company are in a fiduciary relationship with that company. Subsequent to the decision in O’Malley, the concept of who stands in a fiduciary relationship with a company has been expanded: Alberts et al. v. Mountjoy et al. (1977), 1977 CanLII 1026 (ON SC), 16 OR (2d) 682 (available on QL) (HC). Equally, there has been a tendency to limit fiduciaries to those found to hold key operational roles within a company: Barton Insurance Brokers Ltd v Irwin, 1999 BCCA 73, 63 BCLR (3d) 215; Imperial Sheet Metal Ltd v Landry, 2007 NBCA 51, 315 NBR (2d) 328; Carson International Inc v Biggar, 2010 MBQB 198; 322 DLR (4th) 668. This is particularly so where the obligations that an employer seeks to impose on a former employee would adversely impact on that person’s ability to earn a living: Imperial Sheet Metal Ltd v Landry; Carson International Inc v Biggar. In other words, where the alleged breach relates to the use of customer information or similar data, the courts are reluctant to treat former employees in comparatively minor operational roles as fiduciaries of the employer.

[42]  But this line of cases is distinguishable from the situation here. The question in this case is whether the Employees were in a fiduciary position vis-à-vis the Employer with respect to the handling of the Employer’s funds. In this regard, it is clear from the evidence that the Employees were often left in the store alone, with keys to the till. They were responsible to the Employer, at least when working alone for the store in general and the actual proceeds (including cash) in particular.

[43]  We agree with the reasoning in Re McNabb (1995), 1996 CanLII 10329 (AB QB), 167 AR 209, [1995] 5 WWR 509 (QB), where Master Funduk stated at para 17:

Clearly an employee who handles her employer’s money, in whatever form it is in, occupies a position of trust. That trust creates the fiduciary duty to deal properly with the employer’s money. Stealing the employer’s money is a breach of that fiduciary duty.

[44]  The decision in South Nahanni Trading Company Ltd v Gravel (2007), 2007 CanLII 30668 (ON SC), 36 CBR (5th) 115 (available on QL) (OntSCJ), also stands as authority for the proposition that any employee who handles his or her employer’s money is a fiduciary, at least for the purpose of handling the employer’s funds.

[45]  In our view, where an employee is entrusted with the keys to the till and tasked with handling funds belonging to his or her employer, then that employee ought properly to be regarded as standing in a fiduciary relationship with his or her employer with respect to the handling of those funds. This is especially so where, as here, the employer is small company with few employees and limited oversight of those employees.

Valuation of Damages

When an employee breaches a fiduciary duty, such may result in a gain for the employee or a loss to the employer and possibly both; and accordingly, the law addresses the need to ensure that a person who breaches a fiduciary duty is without a benefit or gain from doing so.  The law resolves this need by providing the wronged party, such as employer, with a choice in the approach to determining compensation.  the victim of the breach can choose either disgorgement of any benefit the breaching party received or choose restoration to the finanicial position that the victim would be in without the occurrence of the breach.  This option to choose was stated within the case of KJA Consultants Inc. v. Soberman, 2003 CanLII 13546 where it was said:

[51]  Compensation for breach of fiduciary duty has a restitutionary objective. In a case such as this there are two different approaches to compensation:

(i)  Disgorging the benefits wrongfully acquired by the defendant or

(ii)  Restoring the Plaintiff to the position it would have been in if the breach had not occurred.

[52]  The first approach focuses on the defendant’s gain; the second on the plaintiff’s loss. The plaintiff may elect which approach to compensation they are seeking. ...

Summary Comment

An employee deemed as a fiduciary holds extra-special duties of trust and is held to a higher standard of honesty, good faith, and loyalty, than other common employees.  An employee as a fiduciary must refrain from engaging in conflict-of-interest or conduct that is contrary to the best interests of the employer.


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