According to a Western High Court judgment of February 5 2016, an employer's summary dismissal of an employee was justified due to the employee's non-salaried assignment on the board of directors of a competing company.
The case involved the question of whether the employee had acted disloyally towards his former employer when he became a member of the board of directors of another company during his release period. According to the severance agreement concluded between the employee and his former employer, the employee was not entitled to engage – in whole or in part – in a competing undertaking.
The court found that the former employer had provided sufficient evidence to show that it was a competitor of the undertaking which had engaged the employee and that the competition between the two companies was of major importance. During the period in which the employee had been released from his duties and was still receiving a salary from his former employer, he was subject to a more stringent obligation not to promote the interests of a competing company, due to his executive position and substantial knowledge of internal company matters.
A managerial employee fails to comply with this duty of loyalty if he or she becomes a board member in a competing company while still receiving a salary from his or her former employer. The High Court established that this basic premise also applies even if the employee in question does not receive remuneration for the assignment and where its nature and extent cannot be established more clearly.
The employee did not submit evidence that could constitute grounds for deviating from the above principle. Further, he had not asked the former employer's permission to join the board of directors of the competing company. Consequently, the court found that the summary dismissal had been justified.
The decision illustrates that the assessment of an employee's duty of loyalty in connection with a summary dismissal may be more stringent if a competing undertaking is involved.