A New Chapter for the Duty of Loyalty

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.

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