The Fiduciary Status of Employees

Some English judges recently have asserted that employees are not status fiduciaries. Their view is that, while employees have a status duty of “fidelity,” they are accountable as fiduciaries only where the facts justify it. The difficulty with those judicial assertions is that they are not grounded in either authority or conventional principle. With respect to the jurisprudence, English judges previously had characterised employment as a status fiduciary class. With respect to principle, employees have only a limited (other-regarding) access to the assets of their employers, and consequently (because opportunism is a latent mischief) properly are characterized as fiduciaries across the full range of their employment.

As I explained in a 2008 article (124 LQR 274), the duty of fidelity arose as a misconceived recasting of conventional fiduciary accountability. The source of the confusion may be traced back to the innocent use of the term “fidelity” by one judge in Robb v. Green [1895] 2 Q.B. 315. That usage thereafter wrongly came to be regarded as the source for an independent duty of “fidelity” dissociated from fiduciary accountability.

In 2015 Andrew Frazer challenged my 2008 analysis (131 LQR 53). His research led him to the conclusion that the duty of “fidelity” developed independently from fiduciary accountability and performs functions beyond the control of employee opportunism. I have now responded to his analysis <<(see here)>>. I explain that the cases he marshals to support his view of a single composite duty of fidelity (representing a collection or amalgam of a variety of “harms”) actually support the conventional view that employees are status fiduciaries. I also question the content that he assigns to his duty of fidelity, which apparently includes an expectation of employee commitment or devotion to the business comparable to that of an employer. There is no apparent justification for such a shift of power to employers.

Frazer is not the only commentator recently to challenge the conventional position. Aline Van Bever also asserts that employees are not status fiduciaries (18 CLELJ 39). I have responded to her analysis in another article <<(see here)>>. As I explain, she has been waylaid by her absorption of the confusions in the jurisprudence, she does not appear to comprehend the specific function of fiduciary accountability, she does not accurately represent the jurisprudence of England, Canada, Australia or the United States, she does not understand the import of the duty of mutual trust and confidence or the duty of fidelity, she misconceives the operation of agency accountability and fact-based accountability, and she dismisses conventional policy without sound justification.

Mention must also be made of a peculiar development in the United States. The new 2015 Restatement of Employment Law asserts that employees are not status fiduciaries. That is in direct conflict with the established Restatement (Third) of Agency, which characterises employees as fiduciaries (as a class of agent).

Overall, while it might appear that there is a developing trend towards denying status fiduciary accountability for employees, trends that lack proper justification will be unstable and likely transient. The Supreme Court will have to reject both prior authority and conventional principle before it will be clear that employees have shed their status fiduciary accountability.

Robert Flannigan is a Professor of Law at the University of Saskatchewan.