How much does it take to justify the summary dismissal of an employee on grounds of competing activity? Within a short period of time, the Eastern and Western High Courts have delivered two illustrative rulings concerning this question. 

These two High Court rulings reached different results. Both rulings state that the employee had breached the employment contract by engaging in competing activity. The Eastern High Court justifies the summary dismissal by the fact that the employee's conduct could have resulted in the employer suffering a loss. On the other hand, the Western High Court found that the employee's conduct had not resulted in the employer suffering a loss.

Thus, both rulings illustrate that when assessing the materiality of such cases, the courts attach importance to the potential damage caused by the employee's conduct, including whether the competing conduct may result in the employer suffering a loss.

Background

A summary dismissal is an immediate interruption of the employment, and since a summary dismissal is a serious sanction, the employer is only entitled to dismiss the employee summarily, if the employee has materially breached the employment contract.

During employment, the employee is subject to a duty of loyalty. This duty implies, inter alia, that the employee is not to engage in any competing business. The question before the High Courts was when a breach of this duty of loyalty may justify the summary dismissal of the employee.

The Eastern High Court ruling of 11 November 2011

The case concerned an employee who was released from the duty to work according to a severance agreement. The employee agreed not to accept employment with a competing company during the notice period, and the severance agreement specifically mentioned the duty of loyalty.

The employee was employed by a competing company, but the employment was not to commence until after the expiry of the notice period. 1½ months before commencement, the employee participated in a newspaper interview concerning the competing company. The court had to decide whether this interview constituted such disloyalty that the former employer was entitled to summarily dismiss the employee.

The court found that notwithstanding the severance agreement, the employee was under a duty to act loyally towards the former employer during the notice period. The fact that the employee had participated in an interview about his new employer constituted a breach of the duty of loyalty. The court found that the interview could result in the former employer losing some of its customers, and the interview was therefore considered a material breach justifying the former employer to summarily dismiss the employee.

The Western High Court ruling of 13 October 2011

The case concerned A who had sold his business Y to another company X. A was then employed with X as a sales manager and day-to-day head. After having been employed with X for about a year, A was summarily dismissed. The summary dismissal was based on disloyal conduct as A had sold doors in his new position with X to his own personally owned company. These doors were then sold to a customer that X had not taken over when buying Y.

The Court found that, in his capacity as the day-to-day head and sales manager with X, A was authorised to decide on the delivery of new products to X's customers. However, A's authority did not include decisions in relation to customers not taken over from Y.

On this basis, the Court found that A's decision to sell doors to his own company constituted a breach of the employment contract. The Court found, however, that as X had incurred no expenses in this respect, and as A's own company had gained no profit from the sale, the breach was not considered to be material entitling to a summary dismissal.

The content of this Newsletter is not, and should not replace, legal advice.

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Erik Wendelboe Christiansen

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Marianne Lage

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