In the recent decision of Titus v Hack, the Ontario Superior Court of Justice found that a former employee had breached his contractual duties of fidelity, loyalty and good faith as an employee when he:
- copied a number of business records belonging to his former employer before he resigned,
- deleted them from the employer’s computers, and
- shared copies with his competitive business.
While this finding may not be surprising, employers might be shocked to learn that no damages whatsoever were awarded based on the employee’s breach.
In this case, the former employer failed to show that all but two of the documents removed by the former employee contained any confidential information and, most importantly, failed to establish that it suffered any damages as a result of the former employee’s use of the two confidential documents. As a result, while the court ordered the former employee to return all business records in his possession, it awarded no damages whatsoever to the former employer.
What Obligations did the Employee have to the Employer?
Although the court in Titus found that the former employee was not a fiduciary of the former employer, the court recognized that “ordinary employees” still owe a duty of loyalty and fidelity to their employer during the employment relationship. The court noted that by copying the employer’s business records, retaining those copies and giving access to them to a third-party competitor, the employee had breached his ongoing duties to his employer and he also committed the tort of conversion by removing the documents from the employer’s premises.
The court also assessed whether the former employee had committed the tort of breach of confidence or not by removing and retaining documents belonging to his former employer. The court identified that establishing this tort requires the following:
- the documents must have a quality of confidence;
- the documents must have been imparted to the employee in circumstances importing an obligation of confidence;
- the documents must have been used in an unauthorized manner; and
- the employer must prove that the use of the confidential information by the employee caused the employer losses.
Regarding elements 1 and 2 of the test, the court concluded that out of the over 1,000 documents removed by the former employee, only two documents could be considered confidential and were imparted to the employee in circumstances importing an obligation of confidence. Regarding elements 3 and 4, the employer failed to produce any evidence showing how the confidential information would have or could have been used by the employee, or that this use caused a loss to the company. As a result, the tort of breach of confidence was not established.
Key Takeaways
Although this case may be disappointing for employers, it is an important reality check that there may be no recourse against a former employee who breaches their post-employment obligations absent some evidence of harm caused by the breach. In that regard, it is important to note that the outcome in Titus may have been quite different had the former employee permanently deleted the documents so that they could not be recovered or returned to the former employer, or if the confidential information that had been taken had been used by the competing business to gain an unfair advantage.
As a best practice, employees should always return all Company property in their possession upon the cessation of the employment relationship. Although the former employee in this case was not penalized with a damage award despite the clear breach of his duties, he had to invest significant time and legal fees to defend against the former employer’s claim, which could have easily been avoided.
To try and prevent issues like this from arising, employers may wish to implement reasonable post-employment obligations in order to set clear expectations about an employee’s ongoing duties following the end of the employment relationship. If you are interested in learning more about how we can assist with this, or have concerns about an employee’s post-employment conduct and whether it might be actionable, we encourage you to contact us.
The reality is that not all restrictive covenants employers attempt to impose on employees will be binding. If you are an employee who is being asked to agree to restrictive covenants, or who has questions about their post-employment obligations, we recommend speaking with an employment lawyer before taking action to ensure your rights are protected.
