Supreme Court clarifies departing employees' duties to employers
In the recent decision of the Supreme Court of Canada (SCC) in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. (2008 SCC 54), the SCC confirmed that there is no general duty owed by departing employees to refrain from competing against their former employer; however, employees do have an implied duty to provide reasonable notice of resignation and to act in good faith.
RBC Dominion Securities Inc. (RBC) and Merrill Lynch Canada Inc. (Merrill Lynch) both had offices in Cranbrook, British Columbia, and each was the other's main competition in the investment brokerage business. In November 2000, without any advance notice, virtually all of the investment advisors at RBC left and went to Merrill Lynch. Among the advisors to leave RBC was the branch manager who had coordinated the mass exit. As a result of the departure, only two junior investment advisors and two administrative staff members remained at the branch. In addition, in the preceding weeks before the advisors left RBC, several of RBC's client records were surreptitiously copied and transferred to Merrill Lynch.
Lower Court decisions
At the trial, the judge awarded damages in RBC's favour, finding that the individual advisors had breached their requirement to give reasonable notice of resignation and misappropriated confidential information. The trial judge also awarded $225,000 against the individual advisors for unfairly competing against RBC after their employment had ended and, $1,483,239 against the branch manager for breaching his implied duty of good faith.
The British Columbia Court of Appeal agreed with the award of damages for failure to give proper notice of resignation and for taking confidential information to Merrill Lynch; however, the Court of Appeal overturned the $225,000 damage award, noting that there was no obligation on the advisors to compete fairly following the end of their employment. The Court of Appeal also overturned the $1,483,239 awarded against the branch manager.
Supreme Court of Canada decision
RBC appealed the Court of Appeal's decision, arguing that both damage awards should be reinstated. At the trial level, the judge had found that even though the employees were not subject to express written restrictions, they continued to be under a general duty not to compete with their former employer following the end of their employment.
The SCC disagreed with trial judge, stating that:
The contract of employment ends when either the employer or the employee terminates the employment relationship, although residual duties may remain. An employee terminating his or her employment may be liable for failure to give reasonable notice and for breach of specific residual duties. Subject to these duties, the employee is free to compete against the former employer.
The SCC ultimately agreed with the Court of Appeal on this point and concluded that it was wrong to award damages on the basis that the employees continued to be under a duty not to compete.
The SCC, however, did reinstate the trial judge's award of $1,483,239 in damages against the branch manager for breaching his duty of good faith by orchestrating the mass exodus to Merrill Lynch. The Court concluded that it was an implied term of his contract to retain the employees of RBC who were under his supervision and that by organizing their mass exit, he breached his duty of good faith.
The SCC agreed with the decisions of both lower courts and concluded that employees have an implied obligation to give reasonable notice of termination, noting that a notice period of 2.5 weeks was appropriate. The award of punitive damages, for disclosure of the confidential information, was also upheld.
The benefit of this decision to employers is that it recognizes that an employee may be held liable for failure to give reasonable notice of his or her termination depending on the circumstances. Employers also now has the ability to argue that employees with responsibilities similar to the branch manager, have a duty of good faith, which, in this case, was breached by organizing a mass exodus