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Can Confidentiality & Conflict Of Interest Clauses Actually Ruin Your Contract?

By February 21, 2023April 29th, 2024Employment Law

If you are a dental practice owner and haven’t reviewed your team’s contracts lately, you’ll want to check them over ASAP. You may be surprised to find that some clauses have gone bad, even those written as recently as 2022!

The last two years were full of notable employment law cases and common law developments, causing many existing contracts to be thrown out entirely. For example, we have reviewed the issues with termination clauses that came with the Waksdale case in previous posts. And today, we will look at how the decision in the recent Henderson case has similarly brought confidentiality and conflict of interest clauses into question.

The Facts of Henderson v Slavkin

In the Henderson v Slavkin et al., 2022 ONSC 2964 (CanLII) (“Henderson”) case, the facts start innocently. Two oral surgeons, Drs. Slavkin and Kellner, built up a specialty practice in Bolton, Ontario. In April of 1990, they hired the plaintiff, Henderson, as a front desk receptionist for the practice.

As part of their phased retirement planning – which they did not keep secret from their employees – the aging dentists put their team on written contracts in May 2015. By all accounts, the contract provided to Henderson was properly introduced by Drs. Slavkin and Kellner, with a working notice of two years. Henderson signed the contract two days after receiving it in exchange for a $500 signing bonus.

When the practice was preparing to close its doors in late 2019, its employees were put on notice that everyone’s employment would be ending effective April 30, 2020. The plaintiff continued to work for Drs. Slavkin and Kellner until February 2020, then went on a vacation (and subsequently, paid sick leave) at her full salary. All was well…

…until it wasn’t. The plaintiff’s lawyer then argued that certain sections of her 2015 contract had allegedly non-compliant Conflict of Interest and Confidential Information clauses. Namely, they highlighted the following:

18. Conflict of Interest
[…]
A failure to comply with this clause above constitutes both a breach of this agreement and cause for termination without notice or compensation in lieu of notice.
19. Confidential Information
[…]
In the event that you breach this clause while employed by the Employer, your employment will be terminated without notice or compensation in lieu thereof, for cause.

Unfortunately for Drs. Slavkin and Kellner, claiming that any breaches of either the confidentiality or conflict of interest clause would constitute ’cause’ for immediate dismissal, went against the Employment Standards Act, 2000 (ESA) and its regulations. Therefore, the contract could not achieve its purposes for the employer, namely, to limit noticeor pay in lieu of notice to the ESA standards rather than the much greater common law standards.

Regulation 288/01 under the ESA sets out situations where someone could potentially be subject to termination without noticeor pay in lieu of notice. For our purposes, the phrase which describes potential ’cause’ for without-notice termination is as follows:

wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.

And while several scenarios might meet this extremely high bar, suffice it to say that neither of these clauses met that threshold.

Let’s take a closer look at the Court’s rationale in its decision for each of the clauses in question.

Confidentiality Clause

There is nothing wrong with having a confidentiality clause in your contracts. It is, in fact, a standard and necessary clause to implement to protect patient charts, patient lists, and any other non-public information that is vital to your practice. That said, the issues with the confidentiality clause in the Henderson case were twofold.

First, the clause did not specifically explain what type or severity of misconduct relating to “confidential information”, as defined in the clause, would be considered wilful misconduct that was not trivial, which would be necessary to support a ‘for cause’ termination.

Second, since the clause did not clearly state any prohibited behaviour specifically as being non-trivial wilful misconduct (etc.), it was also unclear “in what circumstances the disclosure of confidential information may occur without immediate termination [without notice]“. In other words, what if you accidentally share or forward confidential information without meaning to harm the practice? For example, accidental forwarding of an email or leaving loose papers out where people might see them have been common occurrences in office environments. The genuine possibility of a trivial or non-wilful breach, as the Court pointed out, made the clause unacceptable because it did not respect the ESA rules regarding terminations without notice.

Conflict of Interest Clause

Similarly, there is nothing unusual about a conflict of interest clause in an employment contract. However, what the Court took particular issue with in this case was the “broad, unspecific and ambiguous” wording in the plaintiff’s conflict of interest clause. And while the Court stressed how certain words were missing/mistyped, there is a more significant red flag in the clause, which bears discussion.

Typically, the intent of a conflict clause is to have an employee disclose any personal or monetary interests that might concern or affect the employer so that the parties can deal with any conflicts (perceived or actual) fairly and reasonably. However, we rarely see language in such clauses imposing a broad prohibition on “unacceptable conduct […] which could jeopardize the patient’s relationship with us“. This overly general language could have resulted in Henderson being fired without notice for a breach of something unclear and ambiguous, resulting in the Court’s decision to throw the whole section out.

Beware of Termination Language

The Henderson case reminds us that no matter which clause or section of an employment contract you’re dealing with, employer dentists should be wary of the language they are using. In particular, you must be extremely careful where and how you apply the dreaded “T” word – Termination.

No employer can permissibly ‘contract out of’ or get employees to agree to something lesser than the minimum standards contained in the ESA. Therefore, suggesting you may terminate an employee ‘without notice’ for anything other than the prescribed reasons under the ESA is contrary to those minimum standards and poses a substantial risk.

In Henderson, the plaintiff’s contract could have perhaps withstood scrutiny and been enforceable if, with the benefit of hindsight, Drs. Slavkin and Kellner could have gone back in time and removed the mere two sentences declaring any breaches of clauses 18 and 19 as immediately fireable offences. However, given that employers cannot ‘sever’ their way out of bad/illegal termination clauses, especially in today’s post-Waksdale landscape, their contract would simply be no good today.

Bottom Line

If you aren’t vigilant about what’s being put into your contracts, it could mean more of your hard-earned money going to former team members and disgruntled employees instead of your pocket, where it belongs. For Drs. Slavin and Kellner, wrongful dismissal damages owed to Henderson added 15 months’ worth of pay in lieu of notice to this costly lesson.

As part of a routine legal health checkup, dentists should review their team contracts to ensure they are legally valid and ESA-compliant. If ever in doubt, don’t wait to be caught off guard with a lawsuit. Instead, consult a dental lawyer to ensure your contract clauses haven’t expired.

At DMC, our team is dedicated to helping dentists understand and minimize the risks associated with being an employer, including non-compliant clauses in their employment contracts. Send us an email or give us a call at 416-443-9280 extension 205 to discuss the specifics of your current situation.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.