In a significant decision clarifying post-employment duties of departing employees, the Supreme Court of Canada held a former manager at RBC Dominion Securities' branch in Cranbrook, British Columbia, personally liable for almost $1.5 million in damages for coordinating the mass departure of RBC's investment advisors to join competitor Merrill Lynch. Released on October 9, 2008, the decision provides comfort to employers by reversing most of the Court of Appeal's findings and concluding that the branch manager breached his duty of good faith by coordinating the exodus.
In November 2000 virtually all of the investment advisors at RBC's branch in Cranbrook crossed the street to join direct competitor Merrill Lynch. The move was coordinated by Don Delamont, RBC's branch manager. Consistent with a desire to quickly transfer existing clients from RBC to Merrill Lynch, none of the departing employees provided advance notice of their resignations, all of which were effective on the same day. In addition, prior to the coordinated announcement of their resignations, the departing employees copied RBC's client records and transferred the records to Merrill Lynch. The net effect of these actions was that RBC's branch in Cranbrook all but collapsed.
None of the departing employees had written employment contracts that required the employees to provide advance notice of termination. There were also no contractual postemployment restrictive covenants (i.e., non-competition or non-solicitation clauses). Nonetheless, the trial judge was offended by the conduct and the findings included:
The British Columbia Court of Appeal reversed significant portions of the trial judge's findings. The lack of written contracts with any restrictive covenants was critical to the Court of Appeal's findings. It concluded that there was no general post-employment duty not to compete unfairly and that Delamont did not breach his common law duty of loyalty by not discouraging the employees from leaving for a competitor.
The SCC restored the majority of the trial judge's findings. Importantly, the SCC's decision restored the trial judge's finding that it was an implied term of Delamont's contract that he would perform his functions in good faith, those functions included retaining the employees of the branch under his supervision and that in organizing the mass departure Delamont breached this duty. The award of almost $1.5 million against Delamont personally is a significant deterrent to managerial or senior employees coordinating the departure of employees to a competitor.
The SCC agreed with the Court of Appeal that there is no general duty not to compete unfairly and that it was inappropriate for the trial judge to make a damages award in respect of this claim.
Regardless of there being no general duty to not compete unfairly, the SCC decision is good news for employers because it confirms that employees have an implied duty: