Legal News

Fiduciary Responsibility of Departing Employees

The Alberta Court of Appeal recentlyreleased a decision that clarifies when an employee will owe a fiduciary dutyto their employer. One of the issues before the Court was whether an employee owedhis employer (TSC) an obligation not to solicit the employer’s clients afterthe employment relationship ended. The case involved a sports agent (Evans),employed by TSC to develop and nurture relationships with hockey playersrecruited from Slovakia and the Czech Republic. Recruitment of these players was done primarily by two of TSC’s contactsin Europe. After six years with TSC, Evans left to start his own agency. Priorto doing so, Evans discussed his departure with the two European contacts and begannegotiations to have them join his new agency. These contacts then helpedinduce TSC’s clients to join the new agency.

Following his departure, a number of TSC’splayer clients left the agency and joined Evans’ agency. While the relationshipwith the European contacts eventually failed and they returned to TSC, many ofthe players recruited by those contacts remained with Evans at the new agency.The trial judge found that Evans had breached both the restrictive covenant inhis employment contract and his fiduciary duty to the employer by inducing employeesand clients of TSC to join his agency. The trial judge awarded damages in theamount of $207,463 for both breaches, finding that they were identical andoverlapped.

The Court of Appeal disagreed that therestrictive covenant had been breached, finding that, because it could be readas restricting Evans from soliciting past clients of TSC, it was unreasonableand therefore unenforceable. However, this did not affect the award of damagesbecause Evans had breached his fiduciary duty. The Court agreed with the trialjudge that the test was whether the employee had some discretion or power, thatthey could unilaterally exercise that power or discretion to affect theemployer’s interests, and that the employer was vulnerable to that power. Inthis case, Evans was entrusted with the development of Czech and Slovak playerswith little or no supervision, he used that power to solicit the clients forhis own benefit, and this left TSC vulnerable to Evans’ actions.

The Court also noted that the status of afiduciary does not require that the employee hold a particular position, butrather, that the responsibilities entrusted to the employee dictates theirstatus. The Court compared Evans’ actions to that of appropriating a corporateopportunity, because he had diverted players away from his employer for his ownbenefit. While fiduciary employees are allowed to compete with their formeremployer, they must wait for the former clients to come to them on their owninitiative. Finally, the Court suggested that where an employer terminates therelationship, an employee may continue to have ongoing fiduciary obligations.

Evansv The Sports Corporation

If you have any questions concerning theinformation presented in this article, please contact Geoffrey Litherland, Partner.