In RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54, the Supreme Court of Canada recently addressed a verdict against a group of departing employees by a British Columbia trial court.
RBC operated an office in Cranbrook, British Columbia. In November 2000, almost every employee in the office abruptly resigned and moved to Merrill Lynch. Don Delamont, the RBC branch manager, coordinated the move. The departing employees copied and retained a number of files relating to RBC customers before resigning.
RBC sued, asserting the following claims:
- Against its former employees for breach of fiduciary duty, breach of implied contractual term not to compete unfairly upon leaving RBC’s employ, breach of implied contractual term to give reasonable notice of termination, and an action for misuse of confidential information;
- Against Merrill Lynch and its local manager James Michaud for breach of duty in tort for inducing RBC staff to terminate their contracts of employment without notice and to breach their contractual obligation not to compete unfairly; and
- Against all the respondents for conspiracy and conversion, the latter related to the removal of documents known to be the property of RBC.
The trial court found for RBC and awarded damgaes on a variety of theories against the departing employees, Merrill Lynch, and Michaud.
On appeal, the British Columbia Court of Appeal overturned two categories of damages: (1) an award of five years worth of lost profits in the amount of $1,483,239 against Delamont for breaching his duty of good faith by coordinating the departure of almost all of the employees from the office that he supervised; and (2) an award of $225,000 for unfair competition against the departing employees.
On review by the Supreme Court of Canada, the highest court reinstated the award against Delamont, rejecting the Court of Appeal’s reasoning that the collapse of the branch was not a foreseeable result of Delamont orchestrating the departure of the office’s investment advisors. Instead, the Supreme Court concluded that Delamont had a duty of good faith (akin to the duty of loyalty set forth in most American states) to manage and retain the investment advisors at his branch. The Court also decided that Delamont violated that duty by facilitating the resignation of the investment advisors and that Delamont was therefore liable for RBC’s lost profits incurred as a result of the collapse of the branch. Notably, the dissent points out that the trial court decided that Delamont did not owe a fiduciary duty to RBC. Therefore, the dissent attacks any award of damages against Delamont based on the judicial creation of a category of "quasi-fiduciary" employees who are liable to their employers if they do not perform their job duties properly.
From there, the Supreme Court decision focuses primarily on the proper calculation of damages, finding that a former branch manager can be liable for five years’ worth of lost profits for facilitating the departure of the employees under his supervision.
In contrast, the Supreme Court overturned the award of $225,000 for unfair competition against the departing employees to the extent that it was awarded based on a duty not to compete. The Court held that employees in Canada owe a duty to provide reasonable notice to their employers before resigning, but that they do not owe a duty not to compete during the notice period (absent a non-compete agreement establishing otherwise). The case highlights a difference between Canadian and American law: the requirement in Canada that an employee provide "reasonable notice" before resigning. And, courts in Canada have discretion to determine what that reasonable notice period will be.
The trial court determined that a reasonable notice period for the employees would have been 2.5 weeks and thus assessed damages in the amount of $40,000 against the employees for failing to provide notice. The Supreme Court held that this category of damages was proper, but the additional award of $225,000 based on the departing employees’ competing during the 2.5 week period was not proper because the employees were not required to refrain from competing.
The Supreme Court further found that the $225,000 award against the departing employees could not be based on the departing employees’ retention of RBC documents because any award for lost profits resulting from the retention and use of the documents was covered already by the lost profits award against Delamont.