A recent Supreme Court of Canada decision has considered the question of who is a “fiduciary”, making it an important one from the perspective of employment law. In Alberta v. Elder Advocates of Alberta Society 2011 SCC 24 (“Elder Advocates”), the court clarified the test to be employed when determining who is a fiduciary, and it would appear that it will be more difficult for employers to establish that any given employee is a fiduciary.
In the employment law context, an employee deemed to be a fiduciary is burdened with obligations beyond those imposed on non-fiduciary employees. For example, after an employment relationship has been terminated, an employee deemed to be a fiduciary must not solicit the former employer’s clients for a reasonable time, even when the employee’s employment contract did not include a non-solicit clause.
In Elder Advocates, roughly 14,000 long-term care facility residents sought and achieved class action certification in a claim that the government was overcharging them. Among other claims, the residents asserted that the government owed—and breached—a fiduciary duty to them. The Supreme Court considered several issues relevant to the class action. One of those issues was the appropriate test to be used in determining whether a fiduciary relationship exists.
Previous Supreme Court of Canada authority had already set out a now well-known three-part test for finding a fiduciary relationship:
(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.
At paragraph 36 in Elder Advocates, Canada’s Chief Justice has now presented additional criteria required for an ad hoc fiduciary relationship to arise:
…the claimant must show, in addition to the vulnerability arising from the relationship as described by Wilson J. in Frame: (1) an undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary or beneficiaries; (2) a defined person or class of persons vulnerable to a fiduciary’s control (the beneficiary or beneficiaries); and (3) a legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary’s exercise of discretion or control.
Although it is a relatively recent decision, Elder Advocates has already been cited in a number of employment law cases, including, for example, ADM Measurements Ltd v Bullet Electric Ltd, 2012 ABQB 150 (ADM Measurements). In ADM Measurements, Germain J. held that while Elder Advocates did not change the test for determining a fiduciary relationship, it did signal that the line of cases centering on vulnerability alone were no longer good law. Germain J. held that something more than an employer’s vulnerability to an employee is required to designate an employee a fiduciary. That extra element is an undertaking on the part of the employee to act loyally.
The Court has added this element to the fiduciary test in an employment context in order to, among other reasons, encourage employers to include express (reasonable) non-compete and non-solicit clauses in employment contracts with employees, wherever employers desire such a relationship. As a result, more than ever employers need to take steps to ensure that key employees have written covenants in place to protect the employer.