Canada: A New Chapter For The Duty Of Loyalty

Last Updated: April 1 2016
Article by Charles Wagner

In Quebec, it is well established that every employee is legally required to be loyal to his or her employer. This premise assures the employer of a certain degree of protection, but the question is, how much? Given the increasing mobility of employees, it is important to know what an employer is entitled to expect from an employee, particularly where the latter decides to leave to join a competitor. The Quebec Court of Appeal reviewed the scope of the duty of loyalty in its recent decision Traffic Tech International inc. v. Milgram et Compagnie ltée1. Before examining the decision, it is worth recalling what this duty consists of. 

The source of the duty of loyalty can be found in Article 2088 of the Civil Code of Québec (the "Civil Code"), which reads as follows: 

2088. The employee is bound not only to perform his work with prudence and diligence, but also to act faithfully and honestly and not use any confidential information he obtains in the performance or in the course of his work. 

These obligations continue for a reasonable time after the contract terminates and permanently where the information concerns the reputation and privacy of others. 

The case law and legal commentators concur that the duty of loyalty must be narrowly construed. Thus, for example, Article 2088 of the Civil Code cannot palliate the effects of an employer's negligence or omission to stipulate a non-competition clause in the employment agreement. 

The duty of loyalty obliges every employee to act loyally and, in particular, not to use confidential information obtained in the course of his or her employment. It also requires the employee to put the employer's interests ahead of his or her own, and to act honestly and in good faith. Serious or repeated breaches of this obligation constitutes just and sufficient grounds for dismissal2

The scope and extent of the duty of loyalty depends on a variety of factors, such as the specific nature of the employer's business and the employee's position within it, the period of time for which an employee has worked for the employer, the employee's status in the organizational hierarchy and the extent of his or her responsibilities, whether the employee has direct dealings with the business's clientele, access to confidential information, etc. 

Accordingly, where a former employee is or was a key person in the organization, such as a senior executive or someone who routinely dealt directly with the business's customers, the duty of loyalty will be much more emphasized. 

It should be noted however that the duty of loyalty becomes much less pronounced after the employment relationship has terminated. This is an important nuance, as it would be unreasonable to require a former employee to continue to act in the best interests of the former employer after the termination of the employment relationship. Thus, while the duty to act honestly and in good faith subsists, it does so only temporarily. Moreover, the Court of Appeal identified certain types of conduct that will contravene the employee's obligations after the termination of the employment relationship, such as [TRANSLATION]: 

Using, for the purpose of soliciting clients, confidential documents or information of the former employer; making derogatory, misleading or false statements regarding the former employer; taking undue advantage of a privileged relationship with the former employer's clientele; repeatedly and systematically soliciting former co-workers to leave the employer; retaining property or documents of the former employer.3

It is also recognized that the duty of loyalty does not prevent the former employee from competing with the former employer using his or her skills, talents and experience. Nor does this duty give the former employer exclusivity over its clients. As the Superior Court mentioned in the Imprimerie d'Arthabaska case, it is the manner in which such clients are solicited that may constitute unfair competition4

Thus, an employee who leaves his or her employer may generally begin to compete with the former immediately by attempting to appropriate its clientele. However, the former employee must not use dishonest, abusive or fraudulent methods in doing so. Permissible competition entails respecting the requirements of good faith. 

In the same vein, an employer cannot simply invoke the duty of loyalty as a basis for trying to prevent one of its employees from going to work for a competitor. 

Finally, only in exceptional cases will the duty of loyalty subsist beyond a period of a few months after the employee's departure. Following this reasonable lapse of time, the former employee will only be subject to the ordinary rules that apply to competition in a business context. 

It is thus in situations where the duty of loyalty of a former employee is trumped by the lure of financial gain where problems have arisen for some employers. 

The Traffic Tech International Inc. case

In this matter, the employee was employed by Milgram & Company Ltd. for ten years. At his hiring, he signed a confidentiality agreement and an undertaking not to solicit the company's clientele. In August 2015, he resigned from his position and began to work for Traffic Tech International Inc., a competing business. 

Before leaving, the employee had solicited a client to do business with his future employer, thereby breaching his duty of loyalty. Informed of this, the former employer filed a motion for an injunction to compel its former employee to respect his duty of loyalty and his undertaking to not solicit clients. On September 16, 2015, the Superior Court issued a provisional injunction, valid for 10 days, ordering the former employee to comply with his legal and contractual obligations of loyalty, confidentiality and non-solicitation of clients. 

The parties were back in court on September 29, 2015 to debate whether the order should be continued. Not only did the judge renew it, she added two further conclusions: 

  • forbidding the former employee from working for his new employer, Traffic Tech, until December 16, 2015, and
  • ordering the new employer to pay the employee during that period. 

The Court of Appeal, somewhat exceptionally, agreed to hear the appeal of this safeguard order. In its view, the conclusions added by the motions judge when issuing the order went beyond what was necessary to protect the legitimate interests of the former employer, all the more so since the paid leave of absence was not requested by the employee and was not even discussed during the hearing. 

According to the Court, the motions judge did not need to prevent the appellant from working when on the one hand, it was not necessary to do so, and on the other hand, he had not signed a non-competition clause. The Court also clearly indicated that the duty of loyalty stipulated in the Civil Code must not be considered the equivalent of a non-compete clause. 

Also, the Court reiterated the rule formulated in the Excelsior5 decision by stating that the concept of loyalty must be dealt with circumspectly so as not to paralyze employees' right to work and to compete6

Discussion

In this decision, the Court of Appeal reiterates that employees have the right to be free to work, and it circumscribes the scope of the duty of loyalty stipulated in the Civil Code. The Court would not allow the paid leave of absence imposed on the employee by the motions judge. While it is true that the employee breached his duty of loyalty, he did so on one occasion only, and that did not justify a compulsory leave of absence. 

The duty of loyalty stipulated in the Civil Code, insofar as it applies to a former employee immediately following his or her termination of employment, is closer in nature to the duty to act in good faith incumbent on everyone in civil responsibility matters, than it is to protection against such practices as the solicitation of the former employer's clientele without misusing the latter's confidential information. Here, the Court of Appeal clearly indicated that the decision at first instance went beyond what was necessary to protect the legitimate interests of the employer7

This finding by the Court is undoubtedly influenced by the highly competitive environment of today's economy. The modern liberal economy has had the effect of raising the degree of competition not only among businesses, but within the labour force as well. The Court of Appeal thus recognizes that, when balancing the interests of an employer and an employee's right to work, not allowing the employee to work at all is overly restrictive. 

All in all, the conclusions underpinning this judgment should be perceived by employers not as a limitation of their rights, but rather as an incentive to wisely use the tools at their disposal. The duty of loyalty stipulated in the Civil Code is not the most effective vehicle for restricting an employee's right to go and work for another employer. As indicated by the Court of Appeal's decision in Traffic Tech International Inc., in the absence of a non-competition clause, the courts will not unduly interfere with an employee's right to work. 

Under circumstances such as these, it would be preferable for Quebec employers to use a clear non-competition clause in order to protect their legitimate interests. 

Written in collaboration with Georges Samoisette Fournier, Articling Student

Footnotes

1 2015 QCCA 2164

2 Concentrés scientifiques Bélisle inc. v. Lyrco Nutrition inc., 2007 QCCA 676, par. 42

3 Concentrés scientifiques Bélisle inc. v. Lyrco Nutrition inc., supra, note 2, par. 44

4 Imprimerie d'Arthabaska inc. v. Roux, J.E. 96-1666

5 Mutuelle du Canada, compagnie d'assurance-vie v. Djebbari, [1992] RJQ 2666

6 Supra, note 1, par. 9

7 Supra, note 1, par. 10

This article originally appeared in French in the February 2016 issue of VigieRT, an online publication of the Quebec Order of Certified Human Resources Professionals.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Charles Wagner
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions