An employee is bound by a general duty of loyalty to the employer by virtue of the employment agreement. Generally, the duty of loyalty entails that an employee is obliged to put the employer’s interests ahead of the employee’s own interests. Thus, it includes an obligation to not disclose any information which may harm the company and to not compete with the employer’s business during the employment. As a general rule, the duty of loyalty ceases by the end of the employment. An employee who has been in breach of the duty of loyalty during the employment may be summarily dismissed. In certain cases, the employee shall also compensate the employer for the loss incurred as a result of the breach. The Swedish Labour Court (Sw. Arbetsdomstolen) has recently ruled on several cases regarding an employee’s breach of the duty of loyalty to the employer.
AD 2018 no. 25
Three employees in a logistics company planned and prepared to start a new competing business during the employment, e.g. by registering a new company in which they were partners and engaging in concluding an agreement between the new company and the employer’s customer. The Swedish Labour Court stated that planning and preparing for a new business which is competing with the employer’s business constitutes a breach of the duty of loyalty. The Swedish Labour Court concluded that the employees, by such planning to start a competing business, were in breach of the duty of loyalty and were liable to compensate the employer for the loss incurred as a result of the breach. The employer was awarded damages in the amount of SEK 2,1 million.
AD 2018 no. 31
Four employees in a company offering personal assistance had terminated their employments to begin new employments with a competing employer. During the employment, the employees had e.g. planned to bring customers to the new business, solicited a customer to hire the competing company and acquired a majority of the shares in the competing company. The Swedish Labour Court made a similar assessment as in AD 2018 no. 25 and the former employer was awarded damages in the amount of SEK 800,000.
AD 2018 no. 49
Four employees in a company had terminated their employments to begin new employments with a competing employer. One of the four employees had also been offered a partnership with the competing employer and had participated in the preparations for the new business. The Swedish Labour Court concluded that two of the employees were in breach of the duty of loyalty. However, the former employer had not proved the financial loss incurred by the breach (e.g. by presenting evidence of which customers that had left the company during the period) and was therefore not awarded damages.
In the judgements, the Swedish Labour Court confirms that preparatory measures to start a new competing business during the employment is in breach of the duty of loyalty. In addition to the employee being summarily dismissed, the employer could claim compensation for damages. In such case, it is of significant importance for the former employer to present evidence to prove the financial loss incurred as a result of the breach of the duty of loyalty.