Post-contractual duty to act faithfully: a protection limited to a (too) reasonable period

October 21, 2012 - by: Isabelle East-Richard 0 COMMENTS

by Isabelle East-Richard

Throughout Canada, whether under article 2088 of the Civil Code of Québec in Quebec or the common law elsewhere, employees have a duty to act faithfully and honestly toward their employer once the employment relationship has ended. That is the case even when there is no noncompetition clause in an employment contract.

Although some have thought that this duty to act faithfully and honestly may give employers protection against competition from their former employees, that protection may be limited. Indeed, in 9129-3845 Québec inc., the Quebec Court of Appeal recently said that it was reasonable for such a duty to last only three months following the termination of employment.

Background

Patrick Dion and Julien Dumont worked for an electrical contractor known as Concept Électrique. While they were still employed, they decided to start their own electrical business and told one of their employer’s major clients about it. A few days after quitting their jobs at Concept Électrique, they successfully solicited that same client and obtained a contract from it.

Concept Électrique applied for an injunction to have its two former employees and the company they had created ordered to stop soliciting its major clients and doing business with them. Concept Électrique’s action was based on the post-contractual duty to act faithfully and honestly under article 2088 of the Civil Code of Québec.

Interim injunction granted

The Quebec Superior Court granted an interim injunction to Concept Électrique in part only. It ordered the former employees to refrain from soliciting and serving their former employer’s major clients but only for three months following the end of their employment, not the 15 months Concept Électrique had asked for.

The court’s reasoning? The former employees had breached their duty to act faithfully and honestly by setting up their business and contacting one of Concept Électrique’s major clients while they were still employed. Such conduct gave them an undue advantage over their former employer. But because neither Dion nor Dumont held key positions with Concept Électrique, the court decided that three months was sufficient.

Limited injunction confirmed

The Court of Appeal agreed with the Superior Court’s decision. In doing so, it said the following about an employee’s post-contractual duty to act faithfully and honestly:

  • the post-contractual duty to act faithfully and honestly cannot impose restrictions on an employee equivalent to those of a noncompetition clause;
  • in the absence of a noncompetition clause, a former employee may vigorously compete with his former employer provided the competition remains fair and in good faith;
  • the scope of the post-contractual duty to act faithfully and honestly varies depending on several factors, such as the nature of the position held, the reasons for the cessation of the employment, the nature of the contract and business as well as the amount of competition in the employer’s business sector; and
  • the post-contractual duty to act faithfully and honestly rarely exceeds a few months.

Applying these principles to the facts, the Court of Appeal agreed that the three-month period was sufficient to ensure that Concept Électrique’s legitimate interests were protected.

Lessons to be learned

These decisions make it clear that the duty to act faithfully and honestly can provide some protection to Canadian employers. However, that protection likely lasts for a short time following the cessation of employment. As such, it shouldn’t be considered a substitute for a noncompetition or nonsolicitation clause. As we have said before, noncompetition and nonsolicitation clauses are legal tools that shouldn’t be overlooked when preparing employment contracts. Of course, such clauses must be in scope, which will vary depending on the employee, employer and industry.

About Isabelle East-Richard:
Isabelle East-Richard specializes in labour, employment, and human rights law, with a particular focus on issues of certification, class actions, labour standards, and employment agreements. She also works in conflict resolution, particularly in the context of commercial litigation and civil and extra-contractual liability.

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