Employees who started a competing business could be summarily dismissed

Two drivers who worked for a company involved with janitorial services, transport of goods and similar services were invited to a meeting after having bought a van like the ones the company used. Both employees had lied about buying the van, but the company suspected that they were offering services in direct competition with the company.

During the meeting it was made clear that the employees could not carry out any competing business. Nonetheless, the meeting did not prevent the spouse of one of the employee’s from putting up advertisements for a newly established company that same night. The advertisements on social media were promoting services such as transport and handywork and were shared by both employees.

When the company became aware that one of the employees were directing the advertisements towards its customers during working hours, in the company uniform, both were invited to separate discussion meetings. During these meetings, it became clear that one of the employees’ spouses had registered a competing company where the employees would be employed.

The next day, the employee who had advertised during his working hours was summarily dismissed. A few days later, the other employee was also summarily dismissed, after having worked for the competing company.

Continued employment would increase the risk of stealing customers

The Norwegian Court of Appeal concluded that the conditions for a summary dismissal had been met. This was because the company had secured documentation that the employees had planned and initiated a competing business during their employment.

In this connection, the court emphasized that the company and the competing business both operated in a small town. This was significant for two reasons; first because the competing business on the limited market would limit the company’s workload and secondly, because it would damage the company’s reputation that its employees actively advertised for a competing business during working hours, while wearing company uniforms.

In this light, the court agreed that termination had not been a better alternative. This was because allowing the employees to keep their notice period would increase the risk of them trying to recruit customers while still being employed. Termination could therefore have led to the company financing the start-up of a competing business. Summary dismissal was therefore a necessary measure in this scenario.

IUNO’s opinion

Although this case does not clarify if planning a competing business in itself is sufficient to summarily dismiss someone, it cannot be excluded that it is. In Norway, the planning of a competing business can be a breach of loyalty. However, this presumes that the preparation in itself harms the company more than what competing business will usually do. This can for example be the case where the company’s reputation is damaged. Oppositely, in Denmark, a competing business is not a breach of loyalty before the start-up of the competing business. Preparations are therefore as a main rule not against the duty of loyalty if taking place during the notice period.

IUNO recommends that companies are aware of the line between loyal and disloyal activities during the notice period of employees who are planning to carry out competing business. For example, it would not be disloyal of a terminated employee to simply mention a change of workplace. However, anything more than that could be solicitation, which would be disloyal.

[The Norwegian Court of Appeal’s judgement LH-2021-144164 of 25 February 2022]