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Do You Owe Your Former Employer a Fiduciary Duty?

Do You Owe Your Former Employer a Fiduciary Duty?

By October 2, 2019March 9th, 2022No Comments

A fiduciary employee is an employee who has strong loyalties to their employer during and after their employment relationship and who may hold a high position of trust and responsibility in the company. An employee’s fiduciary duty may not flow directly from an employment contract. It can exist from the nature or the essence of the employee’s relationship with his or her employer.

It is already established that a fiduciary’s duty to his or her employer does not cease following the end of the employment relationship. Soliciting business from former clients may be considered a breach of that duty depending on the circumstances of the employee’s departure.

In Palumbo v. Quercia, the Superior Court considered the extent of an employee’s fiduciary duty to his or her employer upon termination. The employee was a founder and equal shareholder of the company. The employee brought a client that he had an approximately 14-year existing relationship with in to the company. The client would account for more than 50% of the company’s historic revenue. The employee personally dealt with this major client’s business and repeatedly demonstrated that he had the skill and expertise to earn its projects. The Court established that the client was not an asset of the employer that could be lost, and absent the employee, the employer simply did not have the skill, expertise or experience to compete for the client’s business.

The employee was removed from his position as director and officer of the company and eventually terminated by the two other founders. The major client decided to sever its ties with the employer and subsequently continued its business directly with the employee. The employer lost 50% of its revenue due to the loss of the client.

The Court found the fact that the major client ended its business with the employer because the employee was no longer there significant. The employee made no attempt to solicit the major client’s business until after the client independently decided to take its business away from the employer. The Court also found the manner in which the employee was removed and terminated from his position to be “egregious.” Accordingly, the Court ruled that restrictions on soliciting clients of a former employer will not be as strict for a fiduciary who has been unfairly terminated.

Palumbo v. Quercia reminds both employers and fiduciary employees that the fiduciary duty owed to employers is greatly influenced by circumstances surrounding employment and termination.

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