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Supreme Court Weighs In On Post-Employment Duties
Mon, 2008-10-20 07:59 — Robert Smithson
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Regular readers of this column will be familiar with my interest in court decisions dealing with post-employment competition. The courts have been very accommodating over the years in issuing many, varied views on the ongoing duties of employees.
Recently, the Supreme Court of Canada issued a decision in a case which originated in Cranbrook, British Columbia. The branch manager of the Cranbrook RBC branch, Don Delamont, helped to coordinate the abrupt departure of virtually all the investment advisers at that branch.
They left (without notice) for employment with RBC’s local competitor, Merrill Lynch, leaving only two very junior advisors behind. Before they departed RBC, they copied client records and transferred them to Merrill Lynch. They were described as having made “concerted and vigorous efforts” to move clients to Merrill Lynch before RBC could act to protect its client relationships.
The sudden departure of virtually its entire department of investment advisors left the RBC branch in dire circumstances. The court described the situation RBC found itself in as a “near collapse” of the branch.
RBC sued Merrill Lynch, Delamont, and the other departed investment advisors claiming compensatory, punitive, and exemplary damages.
In my view, the most interesting aspect of this case relates to the court’s findings regarding the conduct of Delamont. At the original trial before the B.C. Supreme Court, RBC had been awarded damages of almost $1.5 million for the loss of profits it suffered as a result of Delamont’s failure to perform his duties in good faith. In particular, this substantial award was based on Delamont’s orchestration of the departure of virtually all of RBC’s investment advisors.
The Supreme Court of Canada upheld the trial court’s award as it related to Delamont. In doing so, the Court considered the duties of Delamont’s position as branch manager.
Reviewing Delamont’s job description, both Courts concluded that part of his duties was to attempt to retain employees and certainly not to promote or coordinate their departure. The Courts concluded that Delamont did more than simply provide the opportunity for the investment advisors’ mass departure. His conduct led directly to the circumstances of the employee’s leaving RBC.
It was found to be an implied term of Delamont’s employment contract that he was to act in good faith to retain the RBC employees under his supervision. In organizing their mass exit, Delamont breached that duty of good faith.
The Supreme Court of Canada upheld the almost $1.5 million in damages awarded against Delamont personally as a result of his breach of the implied term of his employment contract. Those damages were calculated as the resulting loss to RBC over a five year period as a result of Delamont’s actions.
Luckily for Delamont, Merrill Lynch indemnified him for damages awarded against him. This is a relatively common occurrence in these situations (but I’ll bet that Merrill Lynch wasn’t imagining a $1.5 million award when it offered the indemnification).
Employment lawyers are commonly consulted by departing employees on the degree to which their joining a competitor might be viewed as unlawful. Employment lawyers will caution the client about the ramifications, for both him or her and for the new employer, of a possible lawsuit. I have the sense that the client often doesn’t take this caution to heart – possibly because the decision to join the competitor has already been made.
This case demonstrates that there need not be a written employment contract in place for the courts to find that the activities of the departing employee were objectionable. A breach of an implied term of employment – such as the duty of a supervisor to hire and retain employees rather than encourage them to leave to join a competitor – may be all the court needs to find that substantial damages are warranted.
This is the first time I’ve seen the courts rely on this specific implied term as a basis for damages. But, given that the employee orchestrating a mass departure is often a senior person in a supervisory capacity, I’m sure it won’t be the last.
Robert Smithson is a partner at Pushor Mitchell LLP in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, log on to http://www.pushormitchell.com/.
