Canada: A Managerial Employee Violates Her Duty Of Loyalty And Is Imposed A $25,000 Penalty

In the recent decision of Transport Guy Bourassa inc. c. Meloche, the Court of Quebec accepted that an employer transform an employee's termination into a dismissal for cause after discovering a new fact. In this case, the employee held a senior management position and prior to her departure, induced two other senior employees to leave their employment and this, without having any benefit to gain from their resignations. The Court concluded that by doing so, the employee violated her duty of loyalty provided by the Civil code of Quebecas well as her contractual obligations. Moreover, the Court imposed a penalty clause and ordered the employee to pay $25,000 to her former employer.

Facts:

On May 16, 2005, Ms. Meloche began her employment at Transport Guy Bourassa Inc. (TGB) in the position of Security Director. Soon thereafter, Ms. Meloche executed a non-solicitation, confidentiality and non-competition agreement in favour of TGB. This agreement also contained a penal clause of $50,000.

Ms. Meloche progressed within the enterprise and in November 2006, was granted the position of Operations Manager. On May 21st, 2010, Ms. Meloche was advised that her services would no longer be required at TGB.

Following the termination of Ms. Meloche's employment, TGB learned that prior to her departure, she induced their accountant, Mr. Louis Bissonnette, as well as Mr. Karl Béland, a sales representative, to leave their employment with TGB. More specifically, in May 2010, the employee indicated to Mr. Bissonnette that "if he wanted a real job", he would find it at Le Centre du Camion Gamache Inc. Mr. Bissonnette, at this time, had not expressed any interest in leaving his employment nor did he solicit the advice of Ms. Meloche. Furthermore, in March 2010, while Mr. Béland was actively searching for a new job, Ms. Meloche indicated to him that Omniplast Inc. was looking to hire a sales representative. Ms. Meloche then provided useful information to Omniplast Inc. and recommended the hiring of Mr. Béland. Ultimately, Mr. Bissonnette did not resign from his employment with TGB. However, Mr. Béland did accept employment with Omniplast Inc.

TGB then proceeded to claim $50,000 from Ms. Meloche pursuant to the penal clause stipulated in her agreement.

Decision

By referring to Article 2088 of the Civil code of Quebec as well as the teachings of the Supreme Court and the Court of Appeal with respect to an employee's duty of loyalty, Justice Michel Bédard concluded that it is evident that Ms. Meloche committed a fault by suggesting to two long-standing employees to quit their job and referring them specifically to another employer.

In his analysis, Justice Bédard concluded that even if the accountant Bissonnette did not leave his employment, the context and the content of his inducement to leave TGB constituted a fault. Furthermore, Justice Bédard noted that even though Mr. Béland was seeking new employment, it was Ms. Meloche who directed him towards Omniplast Inc. and who facilitated his transfer by providing recommendations to the Human Resources department of Omniplast Inc. Ms. Meloche's actions constituted serious faults, in violation of the terms of her non-solicitation agreement as well as her legal duty of loyalty, the whole justifying a dismissal for cause.

Justice Bédard also concluded that the penal clause stipulated in the non-solicitation agreement was applicable in the circumstances. However, the Court found the amount of the penal clause to be unreasonable, taking into account the circumstances, and reduced the penal clause to $25,000. It is important to note that considering the general terms of the clause and the automatic application of the fixed penalty, the judge in this case appeared somewhat clement. Indeed, it would have been possible for the judge to declare the entire clause invalid instead of reducing the amount stipulated. As such, an employer who wishes to avail itself of a penal cause should ensure that the amount of the penalty is proportionate to the importance of the obligation sanctioned.

This decision demonstrates the scope of an employee's duty of loyalty, particularly in the case of an employee holding a management position. In this case, Ms. Meloche did not, in any way, benefit from inducing the other employees to leave their employment, for example by soliciting them to join her new employer or her own business. Indeed her comments seemed gratuitous and did not show any direct benefit to her. The Court however, did not consider these elements as diminishing in any way the fault she committed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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