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Summary dismissal of CEO for unlawful sale of the company’s products

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calendar 27 September 2020
globus Norway

A CEO for a company occupied with the sale of metal chains could lawfully be summarily dismissed for selling the company’s products for his own personal gain through his own company, which later on competed in the same industry. The Norwegian Court of Appeals emphasized, among other things, that the summary dismissal already was lawful because the CEO had established a competitive company.

The case concerned the CEO of a company occupied with the sale of metal chains. At his employment as CEO for the company, he decided to establish his own company, which subsequently began competing within the same industry.

Once the company became aware that the CEO together with an accomplice, unlawfully had begun marketing and selling the company’s products to their personal gain through the CEO’s own business, the company summarily dismissed the CEO. As part of the reasoning behind the summary dismissal, the company also emphasized that the CEO had undocumented spending on the products company’s account and cooperative issues.

The CEO disagreed with the company’s decision and claimed that the summary dismissal was invalid. He argued that the products had been sold lawfully and never had been the company’s property. On its side, the company maintained that it had had ownership of the products and that this had already been confirmed in four previous trials.

Further, the company maintained that even if it had not had ownership of the product, the sale and marketing through the CEO’s own company had to be deemed as a competitive business and in itself a sufficient basis for the summary dismissal. Finally, the company issued a counterclaim against the CEO to repay the money he had gained on the sale of the product.  

Based hereon, the main question for the Norwegian Court of Appeals was to decide whether the summary dismissal of the CEO was valid.

CEO’s competitive company was enough to summarily dismiss him

The Norwegian Court of Appeals emphasized that the company’s burden of proof was high because the reason of the summary dismissal was serious breach due to the CEO’s circumstances as a result of the claims of theft.

Particularly based on the witness statement of the CEO’s accomplice, the court concluded that the products that had been sold belonged to the company, not the CEO’s own company. This was namely due to the fact that the statement made by the CEO’s accomplice was confirmed by numerous documents as well as other witness statements.

The court further emphasized that because the accomplice had admitted that the products belonged to the company, he himself was liable towards the company to repay the money gained from the sale. On this basis, the CEO’s actions had to be considered a gross breach of duty or other gross breach of contract and so, the court found the summary dismissal to be valid.

The court further noted that in any case, the summary dismissal would have been valid even if the company had not been the owner of the products. This was because the CEO’s own company’s sale and marketing of the same type of products had to be considered a competitive business. The court thereby disregarded the CEO’s claims that the company had known of his own company’s activities and accepted it, as he was unable to provide proof. As the CEO’s own company was clearly competing with the company he was employed by, the court therefore found that this action alone was valid ground for a summary dismissal.

Consequently, the CEO had to repay the money made from the unlawful sale of the products. He also had to repay the undocumented spending’s on the company’s account as he had not been able to provide any documentation of his spending’s despite of several notifications.

IUNO’s opinion

A summary dismissal is a drastic step, which will require strict conditions. The judgement illustrates that the relationship of trust between the company and employee is important. Therefore theft, as well as competitive business, can be considered as a gross breach of duty and a gross breach of contract.

IUNO recommends that companies only consider the legal requirements of a summary dismissals, that is that the sanction can only be used if there is a need in an acute situation. Therefore, a summary dismissal should never be used, if it is possible to use a normal dismissal. Prior to taking the  decision to summarily dismiss anyone, we recommend that companies carry out a careful assessment of the case. Companies should further be advised that proper case handling is a requirement with summary dismissals as well.

[The Norwegian Court of Appeals judgement LG-2019-72362 of 31 August 2020]

The case concerned the CEO of a company occupied with the sale of metal chains. At his employment as CEO for the company, he decided to establish his own company, which subsequently began competing within the same industry.

Once the company became aware that the CEO together with an accomplice, unlawfully had begun marketing and selling the company’s products to their personal gain through the CEO’s own business, the company summarily dismissed the CEO. As part of the reasoning behind the summary dismissal, the company also emphasized that the CEO had undocumented spending on the products company’s account and cooperative issues.

The CEO disagreed with the company’s decision and claimed that the summary dismissal was invalid. He argued that the products had been sold lawfully and never had been the company’s property. On its side, the company maintained that it had had ownership of the products and that this had already been confirmed in four previous trials.

Further, the company maintained that even if it had not had ownership of the product, the sale and marketing through the CEO’s own company had to be deemed as a competitive business and in itself a sufficient basis for the summary dismissal. Finally, the company issued a counterclaim against the CEO to repay the money he had gained on the sale of the product.  

Based hereon, the main question for the Norwegian Court of Appeals was to decide whether the summary dismissal of the CEO was valid.

CEO’s competitive company was enough to summarily dismiss him

The Norwegian Court of Appeals emphasized that the company’s burden of proof was high because the reason of the summary dismissal was serious breach due to the CEO’s circumstances as a result of the claims of theft.

Particularly based on the witness statement of the CEO’s accomplice, the court concluded that the products that had been sold belonged to the company, not the CEO’s own company. This was namely due to the fact that the statement made by the CEO’s accomplice was confirmed by numerous documents as well as other witness statements.

The court further emphasized that because the accomplice had admitted that the products belonged to the company, he himself was liable towards the company to repay the money gained from the sale. On this basis, the CEO’s actions had to be considered a gross breach of duty or other gross breach of contract and so, the court found the summary dismissal to be valid.

The court further noted that in any case, the summary dismissal would have been valid even if the company had not been the owner of the products. This was because the CEO’s own company’s sale and marketing of the same type of products had to be considered a competitive business. The court thereby disregarded the CEO’s claims that the company had known of his own company’s activities and accepted it, as he was unable to provide proof. As the CEO’s own company was clearly competing with the company he was employed by, the court therefore found that this action alone was valid ground for a summary dismissal.

Consequently, the CEO had to repay the money made from the unlawful sale of the products. He also had to repay the undocumented spending’s on the company’s account as he had not been able to provide any documentation of his spending’s despite of several notifications.

IUNO’s opinion

A summary dismissal is a drastic step, which will require strict conditions. The judgement illustrates that the relationship of trust between the company and employee is important. Therefore theft, as well as competitive business, can be considered as a gross breach of duty and a gross breach of contract.

IUNO recommends that companies only consider the legal requirements of a summary dismissals, that is that the sanction can only be used if there is a need in an acute situation. Therefore, a summary dismissal should never be used, if it is possible to use a normal dismissal. Prior to taking the  decision to summarily dismiss anyone, we recommend that companies carry out a careful assessment of the case. Companies should further be advised that proper case handling is a requirement with summary dismissals as well.

[The Norwegian Court of Appeals judgement LG-2019-72362 of 31 August 2020]

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Anders

Etgen Reitz

Partner

Sofie

Aurora Braut Bache

Associate

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