Is on of your senior managers setting up a competing Business on the sly? Fire him!

It is not uncommon for a relatively senior and/or key employee to look for another job while employed. In a recent case, the Ontario Court of Appeal concluded that an employer can fire such an employee for just cause in some circumstances.

The case of Felker v. Cunningham which was decided in August 2000 involved an employee, Mr. Felker, who worked as a Sales Manager. His employer, Electro Source Inc., carried on business as a sales agent for manufacturers of components in the electronics industry.

About one year prior to commencing employment with Electro Source, Mr. Felker incorporated a company. And several months before starting work at Electro Source, he told its President that he had aspirations of starting his own manufacturer's sales agency in the future.

While employed, Mr. Felker used one of Electro Source's computers to prepare a presentation to become a manufacturer's representative for an electronics company, Microchip, on behalf of his own company. He admitted that he had not devoted his full time and attention to his job while preparing this presentation. If his proposal had been accepted, Mr. Felker would have resigned and operated his own company in competition with Electro Source.

The court found that Mr. Felker was a key, valued and trusted employee of Electro Source. As a fiduciary employee, he had an obligation of loyalty, good faith, honesty and avoidance of conflict of duty and self-interest. His duty of good faith required that he be open, honest and forthright with his employer and make full disclosure of all material facts. As such, he was required to disclose that he was preparing a presentation to Microchip with the intent of acquiring this client for his company and thereafter carrying on business in competition with Electro Source even though his employer had earlier decided not to represent Microchip because it manufactured a product that competed with one of its client's products.

When Electro Source learned of Mr. Felker's activities he was fired for just cause. The Court concluded that there was just cause for termination. In coming to this conclusion, the Court noted that a fiduciary employee is not relieved of his fiduciary duties if the business opportunity sought to further his own ends is one that his employer would have been unwilling or incapable of exploiting.

Cases such as Felker v. Cunningham remind us that senior employees have fiduciary duties such as their obligation of loyalty, good faith, honesty and avoidance of conflict of duty and self-interest. If these obligations are not being fulfilled, then an employer can take action accordingly as Electro Source did.