{"id":1218,"date":"2020-11-21T03:59:02","date_gmt":"2020-11-21T03:59:02","guid":{"rendered":"https:\/\/louisliaw.wordpress.com\/?p=1218"},"modified":"2025-08-28T16:07:56","modified_gmt":"2025-08-28T16:07:56","slug":"unwritten-rule-of-employment-loyalty-towards-the-company","status":"publish","type":"post","link":"https:\/\/louisliaw.com\/staging\/unwritten-rule-of-employment-loyalty-towards-the-company\/","title":{"rendered":"Unwritten Rule of Employment \u2013 Loyalty Towards the Company"},"content":{"rendered":"\r\n
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Do you know that employees owe a duty of loyalty and duty of obedience towards the company?<\/em><\/p>\r\n

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In this article I discuss the often overlooked duty of fidelity owed by employees and the possible actions that can be taken by employers when the duty is breached.<\/em><\/div>\r\n
\u00a0<\/div>\r\n
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Introduction<\/strong><\/div>\r\n<\/div>\r\n\r\n\r\n\r\n
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The relationship between an employer and an employee is one of a master and a servant.[1]<\/a> While the description sounds archaic, one may be surprised to find that it is still how courts describe the relationship of employment today[2]<\/a>.<\/p>\r\n

But are the courts wrong? After all, employment is indeed a person being hired to fulfill the instructions, whatever it may be, of another person in exchange for payment[3]<\/a>.<\/p>\r\n

Consequently, with this master-servant relationship, comes a duty on the servant to obey the wills of its master and a duty to be loyal to its master.<\/p>\r\n

A servant that goes against the orders of the master, or who betrays its master for its interest or interest of another person, will breach the fundamental element of the relationship thereby allowing it to be terminated.<\/p>\r\n

Albeit an 1886 decision, the decision of the Court of Appeal of the United Kingdom in Pearce v. Foster & Others<\/em> [1886] 17 QBD 536<\/strong>, remains relevant and is adopted by the Courts today[4]<\/a>:<\/p>\r\n

\u201cThe rule of law is, that where a person has entered into the position of servant, if he does anything incompatible with the due or faithful discharge of his duty to his master, the latter has a right to dismiss him\u2026\u201d.<\/em><\/p>\r\n<\/div>\r\n

In Malaysia, the case of Zainudin Bin Kassim v. Johan Ceramic Berhad<\/em> [2008] 2 LNS 1447<\/strong> cited an academic opinion with approval:<\/p>\r\n

\u201cThe right to control employees is a distinguishing feature of a contract of employment. The right to control implies the right to ask the employee what work to do. It is a dominant characteristic in the relationship of employer and employee, which marks off the employee from an independent character. As such, the employee must subject himself to the said control and behave accordingly. (See Misconduct in Employment by B.R.Ghaiye at p. 42)\u201d.<\/em><\/p>\r\n

These duties of obedience and loyalty subsist in all employment contracts, even if it is not explicitly spelled out.<\/p>\r\n

And perhaps it is because it is not explicitly laid out in the employment contract that some employees, knowingly or unknowingly, embark on activities that breach these duties. This piece will provide some examples of activities that breach these duties and remind employees to avoid them.<\/p>\r\n

Likewise, some employers may also have a misconception that as these duties are not laid down in the employment contract, they have no recourse against the employees when they act in manners as such that harm the company. That is incorrect and this article seeks to bring awareness to that too.<\/p>\r\n

However, as the duty of obedience warrants an article by itself, this piece will focus only on the duty of fidelity, which is a separate duty altogether.<\/p>\r\n

It is hoped that by reading this piece, the reader will understand what the duty of fidelity is, how the duty is breached, and what is the recourse available to the employer (and on the same note, the consequences to the employees).<\/p>\r\n

What is the Duty of Fidelity?<\/strong><\/p>\r\n

In the case of Zaharen Hj Zakaria v. Redmax Sdn Bhd & Other Appeals<\/em> [2016] 7 CLJ 380<\/strong> the Court of Appeal held the following:<\/p>\r\n

\u201c[44] Under the law, an employee of a company has a duty of fidelity to be observed at all times during his employment with the company. What is this duty of fidelity? Every employment contract contains an implied term that an employee will serve his employer with good faith and fidelity (the duty of fidelity). The duty of fidelity is owed by all employees and is to be distinguished from a fiduciary duty. A fiduciary duty requires an employee to act in the interests of his employer, whereas the duty of fidelity requires an employee to have regard to his employer\u2019s interests. Inherent in that duty to have regard to his employer\u2019s interests must be a duty not to act in a manner that would be to disregard his employer\u2019s interests<\/u>. Such acts must include acts that are inherently detrimental to his company\u2019s interests<\/u>.\u201d<\/em><\/p>\r\n

In summary, the duty of fidelity requires the employee to have regard to the employer\u2019s interest and avoid engaging in activities that are detrimental to that.<\/p>\r\n

However, what activities are \u201cactivities that are detrimental to the interest of the company\u201d?<\/p>\r\n

It is impossible to foresee all the scenarios in which the duty of fidelity can be breached. Moreover, certain actions may be a breach in one scenario, but not in another; each case must be treated with regards to its specific factual matrix, and particularly with regards to the specific employment terms entered between the parties.<\/p>\r\n

Examples of Breach of Duty of Fidelity<\/strong><\/p>\r\n

However, here are some examples of actions that have been regarded by the Courts as a breach of this duty. They include, amongst others,<\/p>\r\n

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  1. Working for the benefit of another company other than the employer and obtaining profit from the company without consent or knowledge of the employer[5]<\/a>;<\/li>\r\n
  2. Diverting potential or existing customers of the employer to another company, without consent or knowledge of the employer[6]<\/a>;<\/li>\r\n
  3. Using confidential information and trade secret of the employer for the benefit of another company, without consent or knowledge of the employer[7]<\/a>; and<\/li>\r\n
  4. Planning team-moves and soliciting employees during employment with the employer to join a competitor or set-up a competing business[8]<\/a>.<\/li>\r\n<\/ol>\r\n

    In these circumstances, clearly, the interest of the employer has not only been disregarded but positively harmed by such actions of the employee. Therefore, the employee has breached his\/her duty of fidelity.<\/p>\r\n

    Recourse Available to The Company<\/strong><\/p>\r\n

    When faced with this situation, there are essentially two recourses available to the company, both of which can be undertaken simultaneously. They are:<\/p>\r\n

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    1. Dismissing the infidel employee; and<\/li>\r\n
    2. Taking a civil suit against the infidel employee<\/li>\r\n<\/ol>\r\n

      Dismissing the infidel employees<\/em><\/p>\r\n

      Case laws have shown that actions that breach the duty of fidelity amount to misconduct and insubordination, thereby warranting disciplinary actions and even dismissal[9]<\/a>.<\/p>\r\n

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      However, before terminating the infidel employee, companies are advised to still adhere to good labour practice and natural justice by issuing show-cause letters and conducting domestic inquiries<\/a> first. This is not only the morally fair thing to do but will also either discourage complaints at the industrial court later or strengthen the company\u2019s case if brought to court for the same.<\/p>\r\n

      That being said, if the company has in its possession incontrovertible or overwhelming evidence of such breach, be it documentary evidence or witnesses, then the company can in fact summarily dismiss the infidel employee, i.e. dismissing him\/her without inquiry and with immediate effect.[10]<\/a><\/p>\r\n

      This is because serious misconducts such as diversion of business to another company or breach of confidence can, depending on the context, amount to a breach going to the root of the employment contract.\u00a0 This means that the misconducts had the effect of destroying the relationship of mutual trust and confidence that is essential in a master-servant relationship, causing it no longer possible for the parties to continue that employment.[11]<\/a><\/p>\r\n<\/div>\r\n<\/div>\r\n

      In any event, companies are advised to conduct their investigation and gather solid evidence of such breach in silence first before making any moves. This is to avoid pre-maturely and\/or wrongly terminating these employees and be complained of unfair dismissal, as well as to avoid alerting the infidel employee leading him\/her to destroy evidence.<\/p>\r\n

      Taking a civil suit against the infidel employee<\/em><\/p>\r\n

      Other than terminating the infidel employee, another action that can be taken by the employer is to sue the employees in the civil courts.<\/p>\r\n

      The causes of action are breach of the employment contract, specifically breach of an implied term of the contract (that is the duty of fidelity), unlawful interference with trade, and\/or breach of confidence, depending on the facts of the matter.<\/p>\r\n

      These civil suits will aim to obtain damages from the infidel employee, to have the employee account for profits earned through these unlawful dealings[12]<\/a>, as well as to injunct the employee from continuing such action.<\/p>\r\n

      If another company is also knowingly involved in the unlawful dealings, the other company can also be jointly sued to enhance the chances of recuperating the losses suffered by the betrayed company.<\/p>\r\n

      In the case of Worldwide Rota Dies Sdn Bhd v. Ronald Ong Cheow Joon<\/em> [2010] 1 LNS 444<\/strong>, the Court held that the defendant of the case had committed the tort of unlawful interference with the plaintiff\u2019s trade when the defendant encouraged and\/or influenced the plaintiff\u2019s employees to leave the employment of the plaintiff, when the defendant failed to keep all information obtained in the course of his employment with the plaintiff confidential, when the defendant divulged the plaintiff\u2019s confidential information to the plaintiff\u2019s competitor, and when the defendant made misrepresentations to the plaintiff\u2019s customers with the sole aim of damaging the plaintiff\u2019s reputation.<\/p>\r\n

      The Court also held that the defendant was in breach of his duty of fidelity (albeit in the case said duty was listed in the employment contract) as well as in breach of confidence when he committed the abovementioned activities.<\/p>\r\n

      Consequently, the court awarded an injunction that the defendant whether by himself, his agent and\/or servant, be restrained from doing any further acts which could damage the reputation of the plaintiff and from encouraging the plaintiff\u2019s employees to leave the employment of the plaintiff. The Court also awarded damages of upwards of RM2 million.<\/p>\r\n

      Conclusion<\/strong><\/p>\r\n

      In conclusion, by entering an employment relationship, an employee owes his\/her employer a duty to be loyal to the employer and to always have regard for the employer\u2019s interest. This is notwithstanding the employment contract not having any clause to that effect.<\/p>\r\n

      And when an employee disregards the employer\u2019s interest in his\/her actions, he\/she shall be liable to the losses caused to the employer as well as the termination of his\/her employment.<\/p>\r\n

      Nevertheless, while there is recourse available to the employer, prevention is always better than cure.<\/p>\r\n

      In reality, these situations normally occur due to a weakness in the operations of the company, ranging from a lack of check and balance, over-consolidation of power and authority in one individual, a lack of audit, over-trusting of certain staff, and so on.<\/p>\r\n

      Hence to avoid these unfortunate situations, employers are advised to hire good human resource managers as well as good legal advisors to put in place a robust system of operation that can deter these misconducts.<\/p>\r\n

      Furthermore, this could also be a result of inadequate remuneration to the employees, as ultimately the employees find that the profit gainable from participating in these dealings outweighs the risk of termination and a lawsuit. Therefore, companies are reminded to reward their employees fairly so that their employees do not see it as attractive to betray the trust of their employer.<\/p>\r\n

      With a huge stick and a huge carrot in place, it is believed that employees will not only be loyal to their employers because of the duty implied by law but also, on a personal level, chooses to be loyal to their company and employer.<\/p>\r\n<\/div>\r\n

      This article was first published in Rosli Dahlan Saravana Partnership’s law newsletter – Legal Insight, which a copy can be downloaded here.<\/em><\/p>\r\n

      \r\n\r\n<\/p>\r\n

      RDS Legal Insight September 2020<\/a>Download<\/a><\/div>\r\n<\/div>\r\n<\/div>\r\n\r\n\r\n
      \r\n\r\n\r\n

      [1]<\/a> Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance<\/em> [1968] 2 QB 497, Pearce v. Foster & Others <\/em>[1886] 17 QBD 536<\/p>\r\n\r\n\r\n\r\n

      [2]<\/a> Kamaazura Bt Abu Bakar v KYP Education Sdn. Bhd.<\/em> (Industrial Court Case No.: 12\/4-665\/18)<\/p>\r\n\r\n\r\n\r\n

      [3]<\/a> Ngeow Voon Kean v Sungei Wang Plaza Sdn Bhd<\/em> [2006] 3 CLJ 837<\/p>\r\n\r\n\r\n\r\n

      [4]<\/a> Kamaazura Bt Abu Bakar v KYP Education Sdn. Bhd.<\/em> (Industrial Court Case No.: 12\/4-665\/18)<\/p>\r\n\r\n\r\n\r\n

      [5]<\/a> Pan Malaysian Pools Sdn Bhd v Kwan Tat Thai & Anor and other appeals<\/em> [2018] 4 MLJ 461<\/p>\r\n\r\n\r\n\r\n

      [6]<\/a> The Continuity Company (M) Sdn Bhd V. Chin Chee Hong & Ors (No 2) [2016] 1 LNS 1056<\/p>\r\n\r\n\r\n\r\n

      [7]<\/a> Schmidt Scientific Sdn Bhd v. Ong Han Suan & Ors<\/em> [1998] 1 CLJ 685<\/p>\r\n\r\n\r\n\r\n

      [8]<\/a> Thomson Ecology Ltd and another v APEM Ltd and others<\/em> [2013] EWHC 2875 (Ch), Shepherd Investments Ltd and another v Walters and another<\/em> [2006] EWHC 836 (Ch), [2007] IRLR 110, [2007] 2 BCLC 202<\/p>\r\n\r\n\r\n\r\n

      [9]<\/a> Aetna Universal Insurance Sdn Bhd v. Ooi Meng Sua<\/em> [2001] 3 CLJ 1, Lee Lok Kan V. Foodteller Sdn Bhd<\/em> [2018] 2 LNS 3074<\/p>\r\n\r\n\r\n\r\n

      [10]<\/a> Aetna Universal Insurance Sdn Bhd v. Ooi Meng Sua<\/em> [2001] 3 CLJ 1, Menon V The Brooklands (Selangor) Rubber Co Ltd<\/em> [1968] 2 MLJ 186<\/p>\r\n\r\n\r\n\r\n

      [11]<\/a> ibid<\/p>\r\n\r\n\r\n\r\n

      [12]<\/a> Reading v A-G <\/em>[1951] AC 507<\/p>\r\n","protected":false},"excerpt":{"rendered":"

      Do you know that employees owe a duty of loyalty and duty of obedience towards the company? 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      \n\t\t\tHome<\/a>\n\t\t<\/span>»<\/span>\n\t\t\tEmployment Litigation<\/a>\n\t\t<\/span>»<\/span>\n\t\t\tUnwritten Rule of Employment \u2013 Loyalty Towards the Company\n\t\t<\/span><\/div>","aioseo_breadcrumb_json":[{"label":"Home","link":"https:\/\/louisliaw.com\/staging"},{"label":"Employment Litigation","link":"https:\/\/louisliaw.com\/staging\/category\/employment-litigation\/"},{"label":"Unwritten Rule of Employment \u2013 Loyalty Towards the Company","link":"https:\/\/louisliaw.com\/staging\/unwritten-rule-of-employment-loyalty-towards-the-company\/"}],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?fit=1880%2C1253&ssl=1","rttpg_featured_image_url":{"full":["https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?fit=1880%2C1253&ssl=1",1880,1253,false],"landscape":["https:\/\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg",1880,1253,false],"portraits":["https:\/\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg",1880,1253,false],"thumbnail":["https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?resize=150%2C150&ssl=1",150,150,true],"medium":["https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?fit=300%2C200&ssl=1",300,200,true],"large":["https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?fit=1024%2C682&ssl=1",1024,682,true],"tf-client-image-size":["https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?resize=120%2C120&ssl=1",120,120,true],"1536x1536":["https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?fit=1536%2C1024&ssl=1",1536,1024,true],"2048x2048":["https:\/\/i0.wp.com\/louisliaw.com\/staging\/wp-content\/uploads\/2020\/11\/pexels-photo-5467600.jpeg?fit=1880%2C1253&ssl=1",1880,1253,true]},"rttpg_author":{"display_name":"LouisLiaw","author_link":"https:\/\/louisliaw.com\/staging\/author\/louisliaw22\/"},"rttpg_comment":0,"rttpg_category":"Critical Analysis<\/a> Employment Litigation<\/a>","rttpg_excerpt":"Do you know that employees owe a duty of loyalty and duty of obedience towards the company? In this article […]","post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/posts\/1218","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/comments?post=1218"}],"version-history":[{"count":5,"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/posts\/1218\/revisions"}],"predecessor-version":[{"id":1296,"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/posts\/1218\/revisions\/1296"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/media\/1255"}],"wp:attachment":[{"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/media?parent=1218"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/categories?post=1218"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/louisliaw.com\/staging\/wp-json\/wp\/v2\/tags?post=1218"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}