Question of Law: Much ado about nothing

Felker decision merely confirms that senior employees have a duty to avoid conflict of interest.
By Jeffrey Miller
|Canadian HR Reporter|Last Updated: 03/30/2001

Q Is it just cause for dismissal if an employee uses company time to look for a new job?

A Given the right circumstances, absolutely, says the Ontario Court of Appeal in a recent judgment.

Sherman Cunningham met Kurt Felker while the two men were sharing a golf cart. Cunningham told Felker about his business, Electro Source, which distributed electronic components. Felker replied that he was in sales in the same field and that he hoped to set up his own distributorship, JAS Technology.

Cunningham was impressed but did not have the resources to offer Felker a job at the time. However, a few months later, the plum position of Toronto sales manager opened up at Electro Source, and Cunningham hired Felker at $130,000 per year. Not long after, Felker learned of an opportunity to become the Canadian representative at Microchip, which sold products in direct competition with one of Electro Source’s important clients.

Felker thought that this was the perfect chance to land a big client for JAS, so he used Electro Source’s computer and software to prepare a presentation for Microchip.

Felker admitted that, during that period, he did not perform any work for Electro Source, and that he was gone from the office pursuing his own business interests.

Cunningham learned secondhand of Felker’s activities, and when Felker did not approach him to discuss his new venture, Cunningham fired him.

The trial judge awarded Felker $100,000 in damages for wrongful dismissal, finding that Cunningham knew all along, from the golf meeting, that Felker was seeking a chance to start his own competing company.

But the Court of Appeal has overturned that judgment, finding that Felker had been disloyal as a valued and trusted senior employee of Electro Source. He was a fiduciary — an employee with especially high obligations to his employer — who reported to the company owner.

Given “the trial judge’s finding that Felker was a key, valuable and trusted employee,” Justice Stephen Borins has written for the court, “and taking into account the duties he performed, Felker was a fiduciary employee whose duty of loyalty required that he devote his full time, ability and energy to furthering the best interests of Electro Source.

“The duty to avoid conflict of interest and self-interest required Felker to avoid putting himself in a position where his own interests, or other commercial interests with which he was aligned, would be paramount to Electro Source’s interests or would detract from his ability to work fully and completely for the benefit of Electro Source.

“Moreover, Felker’s duty of good faith required that he be open, honest and forthright with Electro Source and make full disclosure of all material facts that, as his employer, it would be entitled to know to successfully operate its business.

“In this regard, Felker was required to make full disclosure to Electro Source that he was engaged in preparing a presentation to Microchip, with the intention of acquiring Microchip as a client for his fledgling company and, thereafter, carrying on a business in competition with Electro Source.

“In my view, Felker was in breach of his fiduciary duties when he failed to do so. The only way that Felker could have pursued the Microchip opportunity while an employee of Electro Source without being in breach of his fiduciary duties, would have been to make full disclosure to Electro Source and obtain its consent to do so.”

This was so, Justice Borins says, even though Electro Source was not interested in pursuing Microchip as its own client. That is, it lost no profit.

Keep in mind two considerations that much of the daily press seems to have missed about this case:

(1) Felker was no ordinary employee. He was a senior employee acting as the company’s fiduciary. That is, he was in a high position of trust.

(2) Felker didn’t just look for a job soon after Electro Source hired him into a plum position. He went job-hunting while ignoring his important duties at Electro Source.

For more information: Felker v. Cunningham, Ontario Court of Appeal docket C30951, 8/29/00.

Jeffrey Miller is editor of Canadian Employment Law Today. For subscription information, call (416) 609-3800 or (800) 387-5164.

Add Comment

  • *
  • *
  • *
  • *