Court of Appeal declares that post-termination duty of loyalty rarely survives more than a few months
In a recent decision the Quebec Court of Appeal declared that the duty of loyalty provided at Article 2088 of the Civil Code of Quebec rarely continues for more than a few months following the termination of an employee's employment.
In this case, the appellant, Concept Électronique, was seeking the extension of the duration of an injunction issued by the Superior Court against two former employees requiring them to cease soliciting its clients for three months.
In February 2012, the two employees announced their resignation and declared that they intended to start their own business within the same industry. The employees had not signed any non-competition or non-solicitation clauses with Concept Électronique.
Immediately after their departure, the two employees announced the creation of JP Électrique and began soliciting the clients of Concept Électronique. Within a few weeks, JP Électrique was awarded a contract from one of Concept Électronique's clients.
The Court of Appeal confirmed that in the absence of a non-competition covenant, a former employee may compete with his former employer. However, the employee is still bound by a duty of loyalty that applies for a reasonable period of time following the termination of employment. The Court confirmed that the employees had violated their duty of loyalty by contacting a client of Concept Électronique with whom they had developed a close relationship through their employment, and by taking steps to form a competing business, the whole while still employed at Concept Électronique.
However, the Court confirmed that having been advised by the employees at the time of their resignation that they intended to start up a competing company, three months was considered a sufficient period of time for Concept Électronique to contact its clients and take the necessary steps in order to face this new competitor.
The Court confirmed that the post-termination obligation of loyalty must be interpreted restrictively considering that competition in business is fundamental in Quebec society. An employee may compete with his former employer, even vigorously, at the condition that this competition is done in good faith. The Court further confirmed that the scope of the post-termination duty of loyalty will vary, depending on the particular circumstances, including the nature of the employer’s business, the conditions of the employee's employment and his hierarchical level within the organization, the reason for termination of the employment contract and the level of competition within the employer's sector of activities. However, it is only in very exceptional cases that the duty of loyalty will continue for more than a few months following the cessation of the employment relationship.
In light of the foregoing, considering the limited protection offered by the duty of loyalty, it is important for an employer to include the appropriate and necessary non-competition and non-solicitation covenants in an employee's employment contract. This will ensure that an employer’s legitimate business interests are sufficiently protected following the departure of an employee.