Employee and employer obligations don’t end the moment an employee is dismissed
The last day one works at the job is likely not the last day the parties are obligated to each other. Let me explain why this is so.
For the dismissed employee who is owed notice from the date of dismissal forward in time, the terms of the employment contract live on for the purposes of calculating the things due to the employee during the notice period.
The main things due to the employee centre around all the various remuneration issues such as salary, commission, bonus, stock options, benefit plans, vacation and such. The courts invoke what has been called a “judicial fiction” in keeping the employment contract alive for the purposes of such calculation.
Another key consideration is that, as a general principal of contract law, the dismissed employee comes under a duty to mitigate his or her loss. This means the dismissed employee must take reasonable steps during the reasonable notice period to search for equivalent employment and to accept such employment where it is available. Even though this isn’t a duty the employee owes the employer, it may function in a way that benefits the former employer.
Another obligation that keeps an employment contract alive after dismissal is the employee’s common-law duty to the employer not to compete unfairly after the end of the employment. In general, unless there is some specific and enforceable contractual language otherwise, the employee can compete with the employer post-dismissal, but not unfairly. An example of unfair competition would be where an employee takes private information belonging to the employer, such as a written customer list, and uses that information to compete.
The employee may also be subject to a restrictive covenant in the employment contract that acts to restrict the employee from doing certain things after the ending of the employment. The type of things that employers attempt to prohibit employees from doing post-dismissal centre around competition with the employer’s enterprise and solicitation of the employer’s staff and clientele.
In instances where employees are stamped with the imprimatur of fiduciary as a result of the role they played while employed they can owe a fiduciary duty to the employer which may survive a dismissal.
Whether a restrictive covenant will be enforceable or not after dismissal or the ending of employment depends on how the employment contract itself comes to its end. Generally speaking, the restrictive covenant exists within the employment contract. Therefore, when the employment contract dies by employer breach, the restrictive covenant dies with it. But the circumstances of the ending of the employment contract is key. The employer is not in breach of the employment contract in any of the following circumstances:
if the employee voluntarily ends the employment,
if the employer ends the employment and follows the contract in providing the full notice required under the contract to the employee, or
if the employer ends the contract for just cause.
In these instances, the restrictive covenant likely survives the ending of the employment, meaning the employer can enforce the terms of the restrictive covenant against the departed employee.
However, if the employer ends the employment without just cause, and without providing the notice required by the contract, or by extension, the notice required by the common law, then the employer is in breach, perhaps fundamental breach, of the employment contract.
The difficulty for the employer in these situations is in actually calculating reasonable notice.
The law imputes into all employment contracts (unless it is specifically contracted otherwise) that upon dismissal without cause the employer shall provide the employee with reasonable notice. Some employers completely ignore this requirement and dismiss without any attempt at providing reasonable notice. That is certainly a fundamental breach of the employment contract by the employer, in which case the employment contract continues only for the purposes of calculating the damages owed to the employee, and any restrictive covenant obligations within the employment contract end and cannot be enforced against the dismissed employee.
The same fundamental breach of the employment contract by the employer, that of failing to provide reasonable notice, might also bring an end to any fiduciary duty owed by the dismissed employee.
The employment contract often does survive the dismissal event, usually for the employee’s benefit, sometimes for the employer’s benefit.