( Disponible en anglais seulement )
Author: Ian Smith
In recent years, the law with regard to fiduciary duties has shifted more than Sidney Crosby on a rush down the wing. An Alberta Court of Appeal decision involving a hockey agent and his former employer provides the latest twist.
The Alberta Court of Appeal in Evans v. The Sports Corporation, 2013 ABCA 14 (“Evans”) decided that an employee had a fiduciary duty to his employer, even though he was neither a director of the company nor subject to a restrictive covenant. The consequence of deeming an employee a fiduciary is that the impugned employee cannot, among other things, solicit the former employer’s clients or employees for a reasonable time.
Evans appears to alter the law as it stood after the Alberta Court of Queen’s Bench decision in ADM Measurements Ltd v Bullet Electric Ltd, 2012 ABQB 150 (“ADM”), which was seen as a departure from a line of cases going back to Anderson, Smyth & Kelly Custom Brokers Ltd. v. World Wide Custom Brokers Ltd, 1996 ABCA 169 (“Anderson”). Evans appears to shift the law back to Anderson, which is good news for employers.
The Supreme Court of Canada’s decision in Alberta v Elder Advocates of Alberta Society 2011 SCC 24 (“Elder Advocates”) triggered the shift away from Anderson. Elder Advocates revised the test courts apply when determining who owes a fiduciary duty to a beneficiary.
In Elder Advocates, the court highlighted a number of relationships that are deemed to be fiduciary by their nature. These are called per se fiduciary relationships, and they include executor-beneficiary, solicitor-client and parent-child relationships. In the employment context, a director-employer relationship constitutes a per se fiduciary relationship. If an employee is not a per se fiduciary (i.e. is not a director), Elder Advocates indicates the employee may still be an ad hoc fiduciary.
To determine who is a fiduciary, courts traditionally follow a three part analysis first presented in Frame v Smith,  2 SCR 99 (“Frame”):
(1) The alleged fiduciary has scope for the exercise of some discretion or power.
(2) The alleged fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
(3) The alleged beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.
In Anderson, the court noted the status of a fiduciary does not emanate from holding corporate office; rather, it emanates from the responsibilities entrusted to an employee. Most significantly, the court in Anderson, in deciding a branch manager owed a fiduciary duty to the employer, stated an influencing factor in the decision was that the employee and the employer had “the kind of relationship in which equity will intervene to protect the dependent or vulnerable party”. The “vulnerable party” in Anderson was the employer.
However, the Supreme Court of Canada in Elder Advocates decided that an employer’s “vulnerability” to an employee was no longer sufficient on its own to import a fiduciary duty on the employee. Elder Advocates provided that the alleged fiduciary must also undertake to act in the best interests of the “vulnerable” beneficiary. If the employee made such an undertaking, the employee would be deemed to be an ad hoc fiduciary.
Elder Advocates involved the government’s alleged fiduciary duty to long-term care facility residents, but the court followed the “undertaking” requirement in an employment law context in ADM, in which the court held that an “undertaking” occurs in one of two circumstances:
- the employee signs an enforceable restrictive covenant, or
- the employee is a “key senior manager”, who is a “controlling mind” of the company, with “director-like authority”.
After ADM, the message to employers was this: if your employee is not a “controlling mind” of the company and is not subject to a restrictive covenant agreement, the courts will not step in to protect your economic interests.
However, the decision in Evans appears to shift the law back to where it stood pre-ADM. That is, employees may be deemed to be fiduciaries without the requirement of making an “undertaking” to the employer. That is, if the employer can prove that the employer is vulnerable to the employee, this is sufficient to impose a fiduciary duty to the employer.
In Evans, the impugned employee, a hockey agent, worked for the Sports Corporation (the “Company”) for less than six years, was not a director or shareholder of the Company, and did not have the power to hire or promote other employees. Further, the court held that the impugned employee in Evans was not subject to an enforceable restrictive covenant.
However, the court in Evans, in deciding that the impugned employee owed a fiduciary duty (and $200,000.00 for breach of the duty) to the employer, reverted to Anderson and noted that the agent was the “face and voice” of the branch of the Company that recruited players from Slovakia and the Czech Republic. Further, the court noted that the agent had “power and influence” to recruit Slovak and Czech clients and Company employees to follow him when he left the company. As such, the Company’s economic interests were vulnerable to the agent’s actions.
In another recent decision released in late May—Jardine Lloyd Thompson Canada Inc v Harke-Hunt, 2013 ABQB 313, a case in which a branch manager was held to owe the employer a fiduciary duty—Manderscheid J followed the Anderson approach and did not reference Elder Advocates, ADM or “undertakings”.
After ADM but prior to Evans, employers would have been justified in believing that courts would not step in to protect their economic interests from a departing employee unless the employee was subject to an enforceable restrictive covenant or was a “controlling mind” of the employer. After Evans, it is apparent courts may still step in to protect employer’s vulnerable economic interests from former employees, even if the former employees are not subject to enforceable restrictive covenants.
The sixty day limitation to seek leave to appeal has passed for the hockey agent in Evans, and no appeal has been filed. However, given the shifts in the law with regard to fiduciary duties in an employment law context, it is recommended that employers secure enforceable restrictive covenant agreements with all employees to which the employer may be vulnerable, which will take uncertainty out of the matter. As the Boston Bruins know, the best way to stop a Sidney Crosby rush is to prevent it from happening in the first place.