Departing Employees owe duties to Employers

The Supreme Court of Canada has sent a strong message to a group of employees who orchestrated their departure from their employer, resulting in serious harm to the employer's economic interests.

A recent decision released by the Court involved RBC Dominion Securities and Merrill Lynch Canada, competitors in the investment brokerage business. In a move coordinated by RBC's branch manager, virtually all of the investment advisers at RBC left their jobs and went to work for Merrill Lynch. As a result of the departure, only two very junior investment advisors , who Merrill Lynch had not sought to recruit, and two administrative staff members remained at the RBC branch. The employees gave RBC no advance notice and in the weeks preceding their departure they copied RBC's client records and transferred them to Merrill Lynch. The Court found that RBC's office was effectively hollowed out and all but collapsed.

In a 6 to 1 ruling, the Supreme Court restored a trial award of $225,000 against Merrill Lynch, and its manager which were held jointly and severally liable for inducing the breach of the employees' contracts and for unfair competition, as well as $250,000 in punitive damages against Merrill Lynch. The Merrill Lynch manager was individually found liable for punitive damages in the sum of $10,000.

The court awarded $40,000 total damages to RBC against its former employees for failing to give RBC adequate notice of their departure as well as punitive damages of $5,000 each. It awarded over $1.4 million against the former RBC branch manager who had orchestrated the operation for breaching his duty of good faith and $5,000 in punitive damages. The damage award represented five years of lost profits for RBC.

The Court found that damages arising in respect of a breach of contract should arise either naturally, or as reasonably contemplated by both parties at the time they made the contract. In organizing the mass exit, RBC's manager breached his contractual duty of good faith, as an implied term of his employment contract was the retention of RBC employees who were under his supervision. The damages for that breach were the amount of loss it caused to RBC.

Generally individual employees who terminated employment are not prevented from competing with the employer during the notice period. The employer is confined to damages for failure to give reasonable notice. However, a departing employee might be liable for specific wrongs, such as improper use of confidential information during the notice period.

This case is an important one for employees who are concerned about whether they may really be found liable for damages for failing to provide reasonable notice of their departure and the fiduciary obligations of managerial employees and employers who consider hiring employees away from their competitors.

Regards,

Blair