THE CONTINOUS OBLIGATION OF GOOD FAITH AND LOYALTY IN ALBERTA: HAVING A CONFLICT-OF-INTEREST POLICY

The continuous obligation of good faith and loyalty is the bedrock of an employer-employee relationship. The duty of good faith and loyalty have been recognized as a fundamental principle in Canadian law that impels employees to act in the best interests of their employer. The duty of good faith and loyalty is required of all individuals in an organization.

To be under an obligation of good faith and loyalty is a necessity to avoid cases of Conflict-of- Interest. Conflict of interest arises where an employee has diverse interests that may affect loyalties to its employer. And for this reason, it is essential to have an exhaustive or detailed Conflict of Interest policy.

A Conflict-of-Interest policy should have explicit rules or guidelines for identifying and managing conflicts of interest, thereby preventing conflicts and the resulting effect on the employer.

An employer must ensure that its employees understand its Conflict-of-Interest policy.

Survival clauses in Alberta

Survival clauses are terms in a contract that continue to apply even after termination or expiration of obligations between the parties to a contract. It is best practice to include the Conflict-of-Interest policy as a survival clause. This will ensure that past employees remain liable for past conflicts as well as upholding a continuing obligation of disclosure and protection of trade secrets. It also helps a past employee recognize how to identify where a conflict arise. A Conflict-of-Interest clause differs from a Non-Complete Clause.

Having a well drafted Conflict of Interest policy protects an employer from the situation in Johar v. Best Buy Canada Ltd., 2016 ONSC 5287. In this case, the employee was dismissed on the basis of the employer’s allegation that the employee was in the business of operating an in-home repair service in competition with the employer, as well as selling products from the employer’s website. The Court decided that the employer failed to establish a Conflict of Interest. The employee was awarded damages in lieu of reasonable notice.

Canadian corporate law – both federal and provincial – also emphasizes the need for directors and officers to act in the best interest of the company. In many cases, their duties of loyalty are higher than “mere” employees.

What better way to ensure compliance with the duty of loyalty than to have a Conflict-of-Interest policy.

Author: Oluchi Peter