Both employees and employers owe each other specific duties during the employment relationship. The employment relationship is generally sustainable with some degree of trust and loyalty. While employers have a duty to accommodate certain disabilities, for example, employees also owe specific duties to their employer, including duties of loyalty, fidelity, and good faith, or even a fiduciary duty with a higher standard. The employment contract may imply these duties even if they are not explicitly laid out. However, it can sometimes be difficult to define when there has been a breach in their duties. 

In this post, we will discuss what duties an employee owes to their employer. To clarify further, we will explain when their duties would be breached, including examining a case example, Mann Engineering Ltd. v. Desai, 2021 ONSC 7580. This post will provide important insights into an employee’s duties to their employer, which will assist both employees and employers understand their obligations to each other, even if they are not explicitly defined in the employment contract. 

What duties do employees owe to their employer?

Even if not specified in their employment contract, employees owe their employer an implied duty of good faith loyalty and to maintain confidential information. To fulfill these duties, the employee is expected to refrain from competing with the employer, directly or indirectly, during the employment relationship. This includes the duty not to disclose any trade secrets or confidential information. 

Employees are expected not to disclose confidential information even after the employment relationship ends. However, it is important to note that confidential information does not include the general skills and knowledge that the employee gains during the employment relationship with the employer. This would include skills and knowledge that the employee committed to memory rather than skills or knowledge based on the employer’s documentation. For example, if employees leave their role with company documents, digital files, or solitary customer lists, they may be breaching their confidentiality requirements.

Employees must also make sure that they are not competing, directly or indirectly, with their employer. For example, if an employee solicits business from the employer’s clients or business partners while they are still working for the employer, there may be a breach of the employee’s duty of loyalty. Generally, after the employment relationship ends, the employee can become a competitor of their former employer, including setting up a business in the same line of work. The employee can also bring the knowledge and skills they gained from working with the former employer to apply to the new business. After the employment relationship has ended, the employee can also solicit the former employer’s clients as long as this information does not come from the former employer’s documentation, like a customer list. However, there may be non-competition clauses in the employment agreement to limit when the employee can act as a competitor. Depending on the circumstances, these clauses may not be enforceable based on new Ontario legislation.  

Depending on their role and industry, some employees may owe a fiduciary duty to their employer, which involves a higher standard and expectations on the employee to act in their employer’s interests and protect confidential information. To find that the employee owed the employer a fiduciary duty, the employee must have had the power and ability to direct and guide the company’s affairs. The employee must have been in a position to exert or exercise independent power or discretion over the employer’s business.

There are six factors to determine if an employee may have a fiduciary obligation towards their employer:

1. What were the employee’s job duties with the former employer?
2. What extent or frequency of contact did the employee have with the employer’s customers or suppliers during their role?
3. Did the employee act as a primary contact for customers and/or suppliers?
4. What was the employee’s extent of responsibility over sales and company revenue?
5. To what extent did the employee have access to and use or otherwise have knowledge of the former employer’s customers, their accounts, pricing practices, and pricing of products and services?
6. To what extent was the former employee’s information regarding customers, suppliers, pricing, etc. confidential?

When would an employee’s fiduciary duty to their employer be breached?

To illustrate how an employee may breach their fiduciary duty towards their employer, we will consider the Mann case. In this case, the plaintiff was the employer in the business of providing HVAC services. The action concerned several former employees, and the employer claimed that they had breached their fiduciary duties. 

The company’s former vice president had started his own business in the same line of work after he left his role with his former employer. His role involved day-to-day control over the business. Other employees left the plaintiff’s company to join the defendant’s company in 2010. The former employer claimed that two of these employees breached their fiduciary duty and implied duty of loyalty to the company. 

Overall, the court found that neither employee at issue was in a fiduciary position. In particular, they were not part of the management team. They also did not manage customer relationships, nor sales and revenue. Based on the descriptions of their job duties in their employment agreements, they did not have any broad powers of discretion that would allow them to make decisions to affect the company significantly on their own. They were not authorized to alter any pricing set by the employer. Therefore, neither employee had breached fiduciary duty.

However, The court found that one of the employees had breached his duty of loyalty towards the former employer. The employee had an implied duty of good faith and loyalty towards the former employer, which included a duty not to compete with the employer, directly or indirectly, during the employment relationship. 

One of the employees was found to have breached his implied duties of loyalty and good faith, as he was working for a competitor while still employed by his former employer. There was evidence that he was preparing a proposal to a customer on behalf of the new employer. This employee also took several contracts, passwords, and a proposal before he left and forwarded these documents to his email address without adequately explaining why this was required beyond assisting the new employer. 

The court ultimately found that the employee’s actions breached his duty of loyalty to his former employer despite not owing a fiduciary duty. 

Toronto Employment Lawyers Advising On Employee’s Duty To Loyalty And  Employment Agreements

Generally, employees owe their employer a duty of loyalty as an implied term of the employment agreement. This involves ensuring they are not working for a competitor or soliciting the employer’s customers during employment. As this will depend on the specific circumstances of your case, our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from employment contracts. Our goal is to ensure that employees understand their rights and obligations under the employment contract. Haynes Law Firm also assists employers in avoiding liabilities that may arise from employment contracts and policies that do not adequately meet legislative standards. We are dedicated to finding the best resolution for you.

To book a consultation, please contact us online or by phone at 416-593-2731.