Hamilton Perspectives Publications

Recent court cases regarding an employee’s duty of loyalty to the employer

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 at 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 con­clu­sion

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.