Senior managers may owe a duty of fidelity
Author: Daniel A. Lublin
All employees owe a duty of fidelity to their employers, but those in senior management positions may owe even more.
Having developed a plan to leave his job and then compete with his soon-to-be former employer, Gary Fraser didn’t stop there. While still employed, Fraser pounced on an opportunity to distribute his own product to his employer’s customers and then conspired with his secretary to make life difficult for his soon-to-be competitor. But the plan didn’t go as smoothly as Fraser hoped, and not only was he fired but he was successfully sued.
Fraser, a senior manager for Ontario specialty glass company ProScience Inc., had acquired broad responsibilities and was in charge of one of ProScience’s two divisions. Fraser’s downfall at ProScience began when the president, Paul Richards, asked him to attend an industry meeting and gather information about a competitor. But instead of following orders, Fraser advised the competitor that he was thinking of leaving ProScience and asked if they would sell specialty glass to him personally.
Shortly afterwards, while attending an industry convention on behalf of ProScience, Fraser met a marketer who offered him an opportunity to personally distribute remote controls for wood stoves, a product ProScience did not carry. Instead of procuring the opportunity for ProScience, Fraser leapt at the opportunity to sell the remotes on his own. Putting his plan into practice, later that same year, Fraser and his secretary Sue Gomes incorporated Fraser Multi-Tech Corporation Ltd., as partners, and began selling the remote controls to some of ProScience’s customers.
Gomes then resigned from ProScience. Before leaving, she downloaded all the information on her computer onto a disk and then deleted all the files from the computer. ProScience was left without access to vital business information.
Shortly afterwards, Richards discovered a telephone listing for Fraser’s company and learned that it had been incorporated months earlier, with Gomes as the 50 per cent owner. Richards fired Fraser.
Fraser’s company proceeded to compete with ProScience, capitalizing on the information that Gomes had taken and selling products to some of ProSciences’s customers. Fraser also sued ProScience for wrongful dismissal. ProScience responded by countersuing Fraser for business losses it claimed to have suffered.
Since Fraser was senior manager, entrusted with responsibility and access to sensitive information and the ability to use it in a manner that rendered ProScience vulnerable, the court ascribed to him fiduciary duties. Fiduciaries are under a very strict obligation to act only in the best interests of the company, even after leaving.
Determining that Fraser’s conduct was incompatible with his duties, prejudicial to his employer’s business and in breach of his employer’s faith in him, the Court found that Fraser’s dismissal was justified and dismissed his claim for wrongful dismissal. As well, Fraser was ordered to pay ProScience $10,000 for his breach of fiduciary duty.
All employees owe a duty of good faith and fidelity towards their employers, but for most, these duties cease to exist once their employment ends. Fiduciary employees, however, owe a very strict obligation to act only in the best interests of the company, even after leaving. These employees must avoid any potential conflict of interest or acting in their self-interest as opposed to the interests of their company.