Is it a breach of confidence and fiduciary duties? Court examines worker’s 'loyalty'
Ontario's Superior Court of Justice recently dealt with a case involving a former employee who resigned from a steel company to start his own competing business. The case raised several employment law issues, including fiduciary duties, breach of confidence, and employee loyalty.
The former vice president argued that despite his title, he was primarily a salesperson who worked under close supervision. He said that he did not have the level of authority that would make him a fiduciary to the company.
The worker also claimed that he only took preparatory steps towards his new business before resigning, which he believed was within his rights as an employee.
Worker turned business owner
The case centred around a steel company and its former vice president who had worked for the company for about 15 years. The employee started as a director of sales and was later promoted to vice president of a division.
After resigning, he started a competing business in the same industry. The company argued that the former employee was a fiduciary and had breached his duties by competing and soliciting customers.
They also claimed he had misappropriated confidential business documents and shared them with his new company.
Fiduciary duties in employment
The court first addressed whether the former employee, who held the title of vice president, was a fiduciary of the company. Despite his title, the court found that he was not a fiduciary.
The judge noted that the employee's role was primarily focused on sales, and he worked under close supervision and control of the company's owner.
The court said that an employee's title alone is not sufficient to establish a fiduciary relationship. It said that what matters is the substance of the relationship and whether the employee can unilaterally exercise authority in a way that could affect the employer's legal and economic interests.
In this case, the court found that the employee did not have the level of discretion or authority that would make the company particularly vulnerable to his competition if he left. The owner was described as very involved in the employee's work.
Breach of employment duties?
While the court found that the employee was not a fiduciary, it still considered whether he breached his employment duties of good faith, loyalty, and fidelity by competing with his former employer.
The court determined that the employee did not breach these duties because he only took preparatory steps before resigning.
The judge said:
"[The worker] did not breach these duties because all he did before he resigned was take preparatory steps."
Allegations against former worker
One of the key issues in this case was the employee's handling of company documents after his resignation. The court found that the employee had copied and kept a significant number of company business documents, which he then shared with his new competing business.
The judge said:
"I am satisfied that [the worker] copied [the employer's] business records in his possession, kept them and gave [his new company] access to them."
This was found to be a breach of the employee's duties of fidelity, loyalty, and good faith. The court also determined that this action constituted the tort of conversion, as the documents were physical items stored on a hard drive that the employee took.
Despite finding that the employee had kept company documents, the court did not find that he had breached confidence. The company failed to prove that the documents were confidential or that they had been used in an unauthorised manner that caused losses to the company.
The judge emphasised the importance of proving all elements of a breach of confidence claim:
"Even though it is concerning that [the worker] kept troves of business documents and must have shared them with [his new company], it was incumbent on [the employer] to show with evidence that these documents are confidential, that they were used in an unauthorized manner and that this use caused [the employer] a loss. It failed to do so."
Breach of employment duties of good faith, loyalty, fidelity
In conclusion, the court found that the employee had breached his employment duties by copying and keeping company documents, but did not award damages due to lack of proof. The judge ordered the return of all business records within seven days.
The court said:
"I find that [the worker] has breached his employment duties of good faith, loyalty and fidelity by: deleting, copying and keeping a raft of [the employer's] business documents after he resigned. The keeping of the documents also constituted the tort of conversion."
"Although employees may use the knowledge they obtained through their employment, [...] Employees who depart with suitcases of documents, computer files or even a solitary customer list are in breach of their post-employment obligations," the court added.
Finally, the court's decision serves as a reminder that employers must be prepared to prove actual damages resulting from an employee's breach of duties:
"[The employer] did not arrive at any theory for how it suffered any actual damages as a result of what [the worker] did. This would apply to the conversion claim as well where no damages were proven."
This case provides insights for both employers and employees regarding employment law, particularly in situations involving competition and the handling of company information after resignation.
