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Law Offices of Jonathan M. Cooper

Who Is (and Isn't) a Fiduciary Under New York Law


Breach of fiduciary duty. It's a phrase that's used - and mis-used - by so many of us, particularly when we feel  wronged by someone in whom we've placed our trust. But it is important to note that this phrase also carries legal significance, and in fact, it is rather difficult to prevail on a breach of fiduciary duty claim under New York law.

"Why?"  you ask.

Because the law established strict categories of relationships that qualify as "fiduciaries"; it will only be found where the relationship between the two sides - be it corporate or personal - is inherently one that calls for greater trust than is usually the case between two strangers doing business. Some examples include business partners, directors and their corporation, and an employee and his employer.

At this juncture, it bears mention that the facts of each case must be evaluated on its own to make this determination, and there is no hard and set rule. That said, the courts have dismissed several breach of fiduciary duty claims where the relatioship between the parties did not inherently call for a heightened level of trust between the parties, such as a breach of real estate contract between the buyer and seller of a property.

Perhaps the most important - and common - application of this doctrine comes into play in the context of an employee who is leaving to work at a competing business. And this is particularly significant because it demonstrates the clear limitations on what may - and may not - be required of a fiduciary in New York.

Here's the rule:

While still employed, an employee is barred from poaching - i.e., sending to a competitor (whether his own competing business or another one) his employer's clients or employees. HOWEVER, an employee is permitted to lay the groundwork to form a competing business (according to some, he can even incorporate the new competing business) even before leaving his job, provided that he does so on private time, rather than while on the clock for his employer.

One other caveat: the foregoing assumes that the employee was not bound by an enforceable non-compete agreement. In that case, such conduct may very well be barred.