Fiduciary Obligation – The Obligation to Remain Silent

Signing a Contract

The misuse of confidential work information has the potential to cause damage to both employers and employees. A fiduciary obligation is an implied term of employment contracts and arises when either party has enough power or discretion to use information in a way that could negatively affect the other party’s interests. Fiduciary obligations aim to protect the vulnerable party in work relationships involving a high level of trust and confidentiality.

The fiduciary in the relationship is the individual who possesses the power to potentially misuse the confidential information. The beneficiary in the relationship is the party who is dependent on the fiduciary for confidentiality. The fiduciary has an obligation to act in the best interest of the beneficiary.

Some common scenarios in which fiduciary obligations are breached include former employees soliciting clients from a former employer for the benefit of a new employer, and former employees misusing information in a way that negatively affects the previous employer.

Three Factors Defining a Fiduciary Relationship

Canadian Courts have at times found both employers and employees in violation of their fiduciary obligations. Depending on the nature of the employment relationship, either the employee or employer may be subject to a fiduciary obligation. In the case of Lac Minerals Ltd. V. International Corona Resources [1989] 2 S.C.R. 574, the Supreme Court of Canada established a three point test to determine whether one is in a fiduciary relationship:

1.     The fiduciary has the ability to exercise 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 specifically vulnerable to or at the mercy of the fiduciary holding the discretion or power.

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