Guy Castegnaro Ariane Claverie August 30 2017 Court distinguishes between unfair competition and breach of duty of loyalty Castegnaro | Employment & Immigration - Luxembourg Guy Castegnaro, Ariane Claverie Employment & Immigration FactsDecisionOn June 15 2017 the Court of Appeal ruled on the distinction between the obligation of an employee bound by a non-compete clause in his or her employment contract and the duty of loyalty inherent in any employment contract.FactsThe case involved an education assistant manager, who had been employed in a nursery since 2011 and elected as the deputy staff representative. In February 2015 the employer found a number of freely accessible documents on the employee's work computer which showed that, since May 2014, she had been undertaking a project to establish a new nursery during work hours and at her place of work. The documents included, among other things:applications for approval to establish the nursery;curricula vitae and covering letters from people interested in working in the nursery;layout plans for the nursery, which included the address of the premises;invoices with references to a "nursery conversion";quotes for various pieces of furniture and accessories for children;photos relating to the atmosphere of the nursery; andadvertising plans.The employer, which decided that this behaviour constituted an act of unfair competition, immediately suspended the employee for gross misconduct and made a request to the Employment Tribunal to terminate the employment contract due to a breach of the non-compete clause and her duty of loyalty and commitment.In her defence, the employee maintained in particular that she had merely advised her brother, who had started the project, and disputed the fact that she had been actively involved in what had been nothing more than a plan that had fallen through.DecisionThe Court of Appeal first found that the non-compete clause in the employment contract related only to the possibility of the employee setting up a "personal business... when the employment contract is terminated". From this, the court deduced that the non-compete clause did not apply to this situation, as the allegations against the employee related to events that occurred during the course of the employment contract. In this regard, the court pointed out that the mere "plan for a competitive business is in principle compatible with the non-compete obligation during the course of the employment contract".Conversely, the Court of Appeal clarified that the general principle of executing an employment contract in good faith means that an employee should not "develop a business that might be in competition with the employer during the course of the employment contract". It pointed out that the duty of good faith inherent in an employment contract prohibits either party from damaging the other's interests.In this regard, the court held that the employee had committed a serious breach of her duty of loyalty by:consulting and working on documents intended to pave the way for a competing business during work hours and at her place of work; andeven more so in this situation, using tools and information provided by the employer, unbeknown to it.According to the court, such a breach would break an employer's trust in its employee, even if the latter had no intention of setting up his or her own business.While the behaviour that the employer described as an act of unfair competition did not constitute a breach of the non-compete clause in this case, it was impermissible as it represented a breach of the duty of loyalty inherent in the employment contract. This was particularly true as the employee, who was both a manager and a staff representative, was expected to set an example for other employees.The Court of Appeal therefore declared that the employer's request was justified and ordered the termination of the employee's employment contract.(1)For further information on this topic please contact Guy Castegnaro or Ariane Claverie at Castegnaro by telephone (+352 26 86 82 1) or email ([email protected] or [email protected]). The Castegnaro website can be accessed at www.castegnaro.lu.Endnotes(1) Court of Appeal, June 15 2017, 43082.