Legal-ease: Employee loyalty

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Can employers demand loyalty from their employees?

The prime minister recently expelled 21 rebel MPs from the Conservative party for alleged disloyalty. Some employers perhaps looked on this and wished life was so straightforward when dealing with employees.

Staff do owe duties to their employer that seem close to a requirement of loyalty. However, these duties have some significant limitations.

All employees owe an implied duty of good faith and fidelity to their employer. But this is often overstated as a duty to act in the best interests of the company. In fact only employees in fiduciary or quasi-fiduciary positions (such as directors or some very senior managers) owe this more onerous duty. Ordinary staff owe a more limited duty, which at its highest is not to act contrary to the interests of their employer.

Employees are also bound by the implied duty of trust and confidence – a duty not to do anything that intends to or is likely to do irreparable damage or destroy the relationship of mutual trust and confidence.

Courts and tribunals will generally set a high bar where an employer seeks to demonstrate a breach; especially if that breach is alleged to involve a failure to act rather than a wrongful act.

Employees must obey lawful and reasonable instructions, which is a form of loyalty. However, courts and tribunals will scrutinise each instruction to determine whether it was both lawful and reasonable.

The statutory right not to be unfairly dismissed imposes procedural requirements and a substantive obligation to act proportionately when dismissing disloyal employees. For example, the appropriate sanction for disobeying a lawful and reasonable instruction will depend on factors such as length of service, disciplinary record and the nature of the instruction.

Equally, employees are protected against unlawful discrimination and benefit from whistleblowing protections. These rights can act to narrow the scope of what may properly be regarded as disloyalty. An instruction to do something that contravenes a religious belief may not be a reasonable instruction, for example. Staff who blow the whistle are protected even though they may be acting in a way that is contrary to the interests of their employer.

Employers can clarify the extent of an employee’s duty of loyalty by including specific terms in a contract of employment. For instance: imposing positive reporting obligations where wrongdoing has occurred or risks to the business are identified. However, express terms are also subject to and limited by statutory employment rights. For example, an obligation of confidentiality used to conceal unlawful acts will not be effective.

The point is not that employers cannot discipline disloyal staff. But the extent of that will depend on the nature and circumstances of any disloyalty, its potential impact on the business, and will be a balancing exercise against the employee’s substantive and procedural employment rights.

Dan Peyton is managing partner at McGuireWoods’ London office and heads up its employment law practice

This piece appears in the October 2019 print issue. Subscribe today to have all our latest articles delivered right to your desk

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