An Employee's Duty of Loyalty in the Digital Era
Many employers are still trying to digitize their workplaces and play catch up with the latest technology. While software, social media, and various tech tools evolve, long-standing legal principles must evolve in response.
One such principle is an employee’s duty of loyalty. The presumption that employees understand, and will abide by, this duty without direction from, and deterrent measures by, the employer is an outdated view that needs to evolve with the workplace.
What is the duty of loyalty?
An employee owes an implied duty of loyalty to their employer during their employment. This duty is also known as the duty of good faith and fidelity. Case law confirms that this includes obligations to:
act honestly and faithfully
not compete with the employer
not disclose the employer’s confidential information
provide full-time service to the employer
protect their employer’s interests
Absent a contractual or other policy exception, this duty applies to all employees.
For clarity, the duty of loyalty is not the same as a fiduciary duty. Only employees who can unilaterally exercise discretion or power in a way that can affect their employer’s interests have these higher “fiduciary” obligations. Fiduciary employees must always act in the best interests of the company.
Has an employee’s duty of loyalty changed?
The duty itself has not changed. However, with an increasingly digitized workplace and a remote, less engaged workforce, employees’ understanding of the duty lacks clarity and employers’ enforcement of the duty has gotten tougher.
Breaches of the duty of loyalty in the digital era
In 2024, an employee can breach their employment obligations in ways that seemed (or were) inconceivable in the 1900s. A few examples are:
Working a side hustle
Historically, working 9 to 5 was more than just a Dolly Parton song – it was a true reflection of an employee’s day. Wage disparity, housing costs, and school debt have caused young people to seek out opportunities in the gig economy – i.e. to supplement their full-time income with additional work in their off-hours. However, many employees do not realize that working elsewhere without permission is a breach of their obligations to provide “full time and attention” to their employment and avoid conflicts of interest.
Smack talk through instant messaging or social media
I am not aware of an empirical study comparing whether and how much employees talked poorly about their employers and co-workers before the internet and instant messaging vs. now.
But no one would dispute that public instances of employees talking poorly about their employers are more visible than in the old days. Consider: employees can use Slack to denigrate their managers or coworkers, in contrast to when office whispers and water cooler gossip were the only modes of venting. Calling out one’s employer on Tik Tok leads to likes and clout in a way that was unfathomable pre-social media. These are examples of disparagement that are in breach of the duty of loyalty.
Forwarding or downloading confidential information
In previous generations, it was harder for someone to find (let alone take) confidential information – it was literally under lock and key. Even with dawn of computer age, it was still hard to steal company information because it had to be printed. An employee had to invest time to engage in that type of theft.
But with e-mail, then flash drives, then third party storage sites, taking confidential and proprietary information can happen in an instant. But the absence of proper controls and the speed with which information can be pulled should not be confused with permission to take it. Employees are not permitted to take, retain, or disseminate their employer’s confidential information, except in the normal course of business or with approval.
Ways that a company can protect itself
Employers can deter breaches, and strengthen enforcement, of their employees’ duty of loyalty by evolving their approach:
Beef up the boilerplate: In the quest to make a shorter, pithier contract, many employers remove what they view as unnecessary, “boilerplate” language. But by including conditions about the duty of loyalty – e.g. stating that the employee agrees to devote their full-time and attention to work and not engage in any other forms of work without permission – employers can discourage breaches and invite a dialogue with the employee about what is acceptable conduct.
Paper the policy: Policies should be updated regularly and adapted to keep up with new concerns in the workplace. If employees are using AI tools without permission, then tell them not to do so (or, better yet, give them parameters about when it can be used and set up training about responsible use). Then, update policies regarding use of technology and confidentiality to reflect that position. A policy that is neither explained nor disseminated is not an enforceable policy. Similarly, a policy that does not keep up with the times will not deter or encourage the targeted behaviour.
Employ employees, not contractors: We field calls from angry employers upset about seemingly egregious conduct by their workers, asking us to send cease and desist letters and threaten litigation. One of our first questions is about what the worker’s contractual obligations are, including under their employment contract and workplace policies. A challenge arises when we learn that these workers are engaged as contractors, not employees. True contractors do not have the same implicit duty of loyalty as employees. If someone is such a key part of your business that you want them to be bound by loyalty, they should be employed as employees and not engaged as consultants.
Fight technology with technology and transparency: If employers have a concern about their confidential and proprietary information, they should use tools to monitor their assets. In Ontario, larger employers must have electronic monitoring policies that disclose how, when, and for what purpose the monitoring occurs. Many employers use trackers to monitor what and how much data is being shared by employees and limit access to third party sites on electronic devices.
The duty of loyalty has been around as long as employers and employees have been. But employees’ understanding of that duty cannot be taken for granted, nor can the deterrent value of the terms in employment agreements and policies. It is up to employers to be direct and proactive about the enforcement of that duty.
