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What is Breach of Fiduciary Duty

What is Breach of Fiduciary Duty

Wondering what one means by breach of fiduciary duty? It is the breach of an obligation to protect the interest of an employer or client, and can even have serious legal implications. In the following Buzzle article, we will study this law in detail.
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In a professional relationship, one needs to act in the best interest of the employer or client. This means that the directors, high level officers, managers, agents, brokers, etc. should act in good faith of their employers or clients. When they are working for someone else, they should always safeguard the interest of their employers or clients. The party that is providing his/her services to the employer or client is called the fiduciary. The employer or client is considered as the principal in this matter. When a fiduciary begins to seek personal gains and does not act in the interest of the principal, he/she is said to have caused the fiduciary duty breach.

What is Fiduciary Duty?
Fiduciary duty occurs when the fiduciary is entrusted to act on the behalf of the principal. There is a formal relationship between the two parties. The fiduciary is under obligation to act solely in good faith in matters related to the interest of the principal. A fiduciary duty may involve money as well as other matters. The fiduciary acts in the interest of the principal without seeking any personal gains. He/she earns salary or fees for the services as earlier. A fiduciary duty can arise from a contract or can even be an implied one. When an accountant looks into the matters of his client, it is a duty that is taken over by contract. An employee expects retirement funds from the employer. The employee knows by default that his accounts will be looked after by the employer. This is an implied fiduciary duty of the employer, who is going to take care of the accounts of his employees. There are a few points that one should remember when it comes to legal fiduciary duties. These elements of fiduciary duty include:
  • The duty of loyalty
  • The duty of high care
  • The duty to disclose all important matters or information
It includes elements like actions of the fiduciary wherein he/she does not act solely in the good faith of the principal, when he tries to make profit from the faith entrusted upon them. The personal gains of the fiduciary conflict with the interests of the principal. The fiduciary should not act for his own advantage, or benefit a third party, without informing or taking consent of the principal.

Lawsuit in California
When one files a lawsuit in California, the elements include the following points:
  • One needs to prove that there was fiduciary duty involved
  • The breach arose from the formal relationship
  • There was damage suffered by the principal due to the fiduciary duty breach
The principal needs to establish the fiduciary duty and its breach. When this is established, the court will find that the fiduciary did gain from the principal. The court may order the fiduciary to return all the profits earned back to the principal. One of the common remedies to this conflict is called constructive trust. This means that the profits need to be transferred back to the principal. The principal seeks a compensation in case the accounts of profits are hard to establish.

A fiduciary is morally and legally obligated to act only in the interest of the employer or client. High ranking officials of big organizations, business partners, agents, share brokers, etc. all need to act in favor of their respective principal. They cannot seek personal gains or hide valuable information from their principal, even if they have a strained relationship. If you have any more doubts regarding the same, it is advisable that you speak to your legal adviser.