Legal Updates

Breach of confidentiality and non-compete after termination of employment may justify repayment of paid severance pay

April 2, 2022

A company released severance pay to an employee who resigned, after the employee promised to make an orderly transfer of the position, not to contact company customers and to not compete with it. In retrospect, it turned out that the employee breached such obligations.

The Labor Court accepted the company's claim and held that the circumstances of the employee's resignation justify denial of the severance pay and their repayment. An employment contract is a contract of cooperation based on a relationship of trust and a fiduciary duty. The duties of acting in good faith and trust also apply after the termination of the employment relationship. The use of information that does not rise up to a 'trade secret' level, but constitutes 'confidential information' of the employer may be considered, in some cases, a breach of the duties of trust and good faith that justify the denial of severance pay from the employee. In this case, the company held a farewell party for the employee, gave him a gift and even granted his request to release his severance pay, after the employee said he would not duly transfer his position if the company would not agree to pay him the severance pay. Eventually, it turned out that in his new job not only did the employee make use of the knowledge of his previous employer, but also took advantage of his personal acquaintance with its customers in order to recruit them as customers of his new workplace and thus, helped his new employer to enter the market quickly. In addition, the employee ultimately did not fulfill his obligations to maintain an orderly transfer and left his job at short notice contrary to his promise even though he received the severance pay. Therefore, because the employee acted in bad faith, he is to repay the severance pay to the company.