20 Sep Fiduciary’s Obligation not to Assist Competitors, Law360 Canada (September 20, 2023)
Senior executives, key employees and corporate officers owe their former employers’ fiduciary duties. The term “fiduciary” stems from the Latin root of the word fiduciaries meaning “holding thing in trust.” The concept of a fiduciary duty is not novel. It dates back to medieval England and was, first, referred to by the Supreme Court of Canada in 1879 in Taylor v. Wallbridge, , 2 S.C.R. 616.
Despite this, fiduciary obligations are generally considered to arise not from common law, but equity and transcend the duties of loyalty and fidelity owed by non-fiduciary employees. A fiduciary duty arises, inter alia, where the fiduciary has scope for the existence of some discretion or power, which makes the beneficiary particularly vulnerable to, or at the mercy of, the employee exercising such discretion or power as to affect the beneficiary’s legal or practical interests. As such, a fiduciary cannot engage in activities where he has personal interest that conflicts within anything his current or former employer does, without first making full disclosure and obtaining the employer’s consent.
In EF Institute for Cultural Exchange Limited v. WorldStrides Canada Inc., 2023 ONCA 566 (EF), the Court of Appeal for Ontario dealt with an interesting question of whether a senior executive breached his fiduciary duties for “providing assistance” to his ex-employer’s competitor during his job interview with it. The Court of Appeal dismissed the former employer’s appeal stating, in part, that “EF’s case has dwindled and now seems to take the form of a corporate grudge match that does not deserve to be prolonged further.”
EF involved corporate litigants, which are the Canadian arms of global companies, competing in the education tour business. David Conklin was employed by EF as its president. His employment contract contained a non-competition clause, which restricted him for a period of one year, not to:
… engage or participate or in any way render services or assistance to any business that competes directly with any product or service that Employee participated, engaged in or and confidential knowledge of during the Employee’s employment with the company.
Following his without cause dismissal, and the day after the expiry of the non-competition clause, Conklin was hired by WorldStrides Canada Inc. (WSI) as general manager, to open a Toronto office and build the Canadian end of the business. In response, EF sued Conklin and WSI for breach of the employment agreement and the severance agreement, which repeated his post-employment non-competition obligations.
After several procedural skirmishes and full discoveries, and after the case was scheduled for trial, Conklin and WSI successfully moved for summary judgment.
EF appealed the motion judge’s decision.
It asked the Court of Appeal to set it aside and remit the matter to the Superior Court of Justice for trial. EF argued, albeit without success, that the motion judge made four errors. One of which was his failure to consider that Conklin “assisted” a competitor during the relevant non-compete period. The alleged assistance was rooted in Conklin attending an employment interview with several of WSI’s employees and officers in Charlottesville, Va., where he spoke about the potential location of their new office in Toronto.
In his reasons, the motion judge concluded, implicitly, that such non-sensitive information was a de minimis communication, which had little if any impact on competition. In support of his conclusion, the motion judge cited with approval, the Superior Court of Ontario’s decision in Guzzo v. Randazzo et al., 2015 ONSC 6936 (Guzzo), for the proposition that meeting a prospective future employer that is a competitor is not, on its own, a breach of fiduciary duty.
Arguably, Guzzo is not an entirely appropriate citation for the purposes of fiduciary analysis, because that case involved a unionized business manager, who was not a fiduciary. While in EF, Conklin, as EF’s president, was undeniably a fiduciary. Nevertheless, the Court of Appeal upheld the motion judge’s reasoning and his reliance upon Guzzo.
EF reaffirms that preparation for future employment presupposes contact with potential future employers, as well as it involves assessing other job prospects. If a departing employee is found to be a fiduciary, the restrictions with respect to him offering his experience to a potential employer would be much greater. Much like other non-fiduciary employees, fiduciary employees are permitted to plan and prepare for future employment with a competitor. However, they cannot engage in unfair competition with their former employers. As a general rule, there is nothing to preclude a fiduciary employee from sharing or revealing his or her qualifications, work experience and knowledge with any potential employers, as long as the post-employment obligations to confidentiality and non-competition are not breached.
When it comes to post-employment non-competition restrictions, it might be helpful to keep in mind that on Dec. 2, 2021, the Working for Workers Act, 2021, which amended the Ontario Employment Standards Act, 2000 (ESA), received royal assent. This legislation made the province of Ontario the first jurisdiction in Canada that has legislated a statutory prohibition of non-competition agreements in ordinary employees’ employment contracts or “other agreement with an employee that is, or that includes, a non-compete agreement” (eg settlement agreements), and rendered void any non-compete agreement made in violation of the prohibition, subject to certain narrow exceptions.
Notably, this statutory prohibition does not apply to c-level executives, which job titles are painstakingly spelled out in paragraph 67.2(5) of the ESA. Nor does it apply to employment disputes involving non-competition agreements which occurred prior to Oct. 25, 2021. The revised ESA provisions only apply to non-competition agreements entered into with an employee (which includes an applicant for employment) on or after Oct. 25, 2021.