11 November 2020

Does Starting A Business While On Leave Constitute A Breach Of The Duty Of Loyalty?



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It is not unusual for employees to use a long leave to complete projects they have been planning for years.
Canada Employment and HR
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It is not unusual for employees to use a long leave to complete projects they have been planning for years. If the project involves starting a business, however, employers may be concerned about the employee's loyalty or availability. Regardless, employers should not be hasty in deciding that an employee has breached their duty of loyalty. Situations should be assessed on a case-by-case basis, since subject to the nature and terms of their employment, employees may have a right to operate a business while being employed as long as it does not affect their work.

In Pineault et Groupe Marketing International inc., 2020 QCTAT 198, the Administrative Labour Tribunal ("Tribunal") found that an employer had been quick to jump to conclusions and could not reasonably terminate an employee who publicly announced on Facebook that she intended to start her own business shortly after returning from parental leave.

The Facts

The complainant was working as a team leader at a call centre. One week before her return from maternity leave, the complainant and the employer agreed to postpone the complainant's return by a month.

After postponing her return to work, the complainant announced on her Facebook account that she was opening a home daycare. She mentioned that this was a dream come true and that she intended to open the daycare as soon as two people registered. Meanwhile, she continued to communicate with her employer to prepare for her return to work.

A few of the complainant's colleagues showed her post to the president of the company, who, upon seeing it, felt betrayed. Believing it could no longer trust the complainant, the employer sent her a termination letter before she could return to work.

Administrative Labour Tribunal Decision

At the termination hearing, the employer cited "constructive" resignation and breach of duty of loyalty as reasons for the termination.

The Tribunal quickly dismissed the constructive resignation argument. Resignation cannot, in fact, be "constructive" or "disguised". Moreover, even if the complainant's project was well underway, it could only be completed on the condition that two people registered, and there was no way of knowing when or if this would happen. The Tribunal concluded that an employee's desire to leave a position after certain conditions are met cannot constitute resignation, and is instead a plan or an intention. Furthermore, despite what she had posted on Facebook, the complainant continued to express her intention of going back to work. This is not consistent with the behaviour of a resigning employee.

The employer alleged that the complainant was disloyal by failing to inform it of her project. The employer did not consider this project to be in its best interests and decided that it was a breach of the employee's duty of loyalty. The Tribunal did not accept this argument. Wanting to change jobs or start a business sometime in the future cannot be considered a breach as long as it does not affect the work the employee is doing for the employer.

Accordingly, the Tribunal determined that the employer failed to prove it had good and sufficient cause for termination. The true reason for termination was in fact related to the betrayal the president of the company felt when she saw the complainant's Facebook post.

The Tribunal allowed the complaints, rescinded the termination and ordered the employer to pay the complainant the equivalent of the salary and other benefits she had lost.

Comments and Best Practices

Despite its outcome, this decision serves as a reminder to employers across Canada that employees who are on leave (maternity, parental, disability, without pay, etc.) remain bound by their duty of loyalty. The same goes for employees who were laid off due to COVID-19. In a temporary layoff, employment is suspended but not terminated and employees remain bound by their duties. When it is time to return to work, some employees might find themselves in a different situation, may have worked on personal projects or found other part-time work, etc. This does not mean that employers can use an employee's second job or potential intention to resign to justify their decision not to call the employee back to work like other staff.

This decision may, however, have had a different outcome depending on (i) the employer's industry, (ii) the employee's position and terms of employment, (iii) the content of the employee's social media posts, (iv) and any impact on the employer. In some situations, expressing a desire not to return to work can have a negative impact on the employer or on customer retention that may be a breach of employment terms. Similarly, using confidential work tools, information, or other resources to start a business or to compete with her employer may have breach her obligations. To avoid such situations, we encourage employers to implement a policy or contract settting expectations regarding employees' social media posts and with respect to employees' obligations during their leave and upon their return to work. Subject to applicable law, employers may also consider a contract term requiring exclusive service to the company and written consent for any outside businesses.

In any case, it is crucial for the employer to do an investigation sbout a possible breach of the duty of loyalty before proceeding with discipline or discharge. This will ensure that appropriate decisions are made on validated information and a fair opportunity is given to the employee to respond to allegations of misconduct - perhaps by offering a legitimare explanation for their conduct. 

If you have questions about a case involving a breach of the duty of loyalty or need assistance, please contact the author or your regular Fasken lawyer.

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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