Increase in litigation by employers against former employees
In reviewing the cases that come along through the various reporting services, my subjective impression is that there appears to be an increase in litigation by employers against former employees. Where this once may have been a relatively uncommon occurrence, the apparent increase in such lawsuits makes it worth while to take a quick look at some of the key factors in such litigation.
Briefly, an employee’s duty of loyalty and fidelity can be split into two broad categories: that which exists while he or she is employed and that which persists after the employment ends.
All employees owe the following duties to their employers during the term of employment:
- To serve his or her employer faithfully.
- Not to compete with his or her employer.
- Not to reveal his or her employer’s information.
- Not to conceal from his or her employer facts which have to be revealed.
- Full time service to his or her employer.
This was also summarized in CRC-Evans Canada Limited v. Pettifer (Alberta Court of Queen’s Bench) as follows:
It has long been accepted that there is a fundamental term implied in every contract of employment. The employee is expected to serve his employer honestly and faithfully during the term of his employment. This duty of fidelity permeates the entire relationship between employer and employee. It is a flexible concept that is paramount to the basic relationship. There is an implied obligation placed upon the employee to act in the best interest of his employer at all times. The employee shall not follow a course of action that harms or places at risk the interests of the employer. As such, an employee who takes steps to act against the employer’s interests while still employed by them is breaching his or her duty to the employer.
However, there are limits on this duty. The recent case of Aquafor Beech Limited v. Whyte (Ontario Superior Court) holds that the mere planning of a business does not breach this duty. Employees are allowed to take preliminary steps to set up a competing business it is done outside business hours and there is no conflict with the employer.
As noted above, some fiduciary duties will survive the end of the employment relationship. Where an employee is a “key employee” the employee will remain under a duty not to compete unfairly with their former employer for a time after their departure. Competing unfairly is usually held to mean making use of confidential information to seize opportunities that the former employee would not have known of but for their previous employment. This often but not always takes the form of the solicitation of clients.
In conclusion, it may be the case that as our workforce transitions to a more knowledge based economy that such this type of litigation will become more common. Certainly, the opportunities for the breach of such duties will become more available and more lucrative. Employers and employees both are well advised to take legal advice to protect their interests when establishing a new company, particularly if there is confidential information involved. An employer will want to protect their investment, and an employee will want to make sure that any new business venture is not derailed by litigation.
Andrew D. Taillon
Cox and Palmer