RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc.

RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc.

Can employees be sued successfully when they go to work for the competition?  In some cases, the answer is yes, even the employees do not have enforceable non-competition agreements in place.

In November 2000, a Branch Manager at RBC in Cranbrook, B.C. coordinated a group move where virtually all of the RBC employees went to work for Merrill Lynch in the same town, without giving any notice. Before leaving, they copied RBC records and provided the information to Merrill Lynch. RBC sued.

The B.C. Trial Court held that the employees had breached implied terms of their agreements by failing to give notice of resignation, by breaching duties of confidentiality and by breaching duties of good faith owed to their employer. Significant damages were awarded. Damages for improperly copying information and providing it to Merrill Lynch were awarded by the Trial Court and were not appealed. There is no real legal issue or difficulty with these types of damages. Similarly, damages for failure to give proper notice of resignation were also relatively reasonable and legally supportable. The major issue to be determined by the appellate courts in this case was whether the RBC Branch Manager owed a duty of good faith to RBC and whether the Branch Manager breached that duty by leaving with a number of other employees to go work for Merrill Lynch.

The case was appealed to the Supreme Court of Canada after the B.C. Court of Appeal had lowered or reduced some of the damages that had been awarded at trial.

The majority of the Supreme Court sided with RBC and ordered the defendants liable for five years’ profits. The Supreme Court noted that part of the Branch Manager’s job was to recruit and train staff. By recruiting staff for a competitor, while still working for RBC, he effectively breached the duties of good faith that he owed to RBC. He had coordinated a mass exodus of employees and this was a breach of the obligations that he had to work in the best interests of RBC. The Branch Manager and Merill Lynch were liable for five years’ worth of damages.

Once again, as with Evans v. Teamsters, Justice Abella was the lone dissenting judge from this harsh majority decision. In an angry but carefully argued and legally logical dissent, Justice Abella focused the discussion on whether or not the Branch Manager had breached any legally recognized duty of good faith owed to his employer and if so how the damages should be calculated.

Justice Abella noted that historically, employees have generally only been found liable if they have competed with their employer while working or if they have improperly used confidential information. In this case, there was an award for the improper use of confidential information – including a punitive damages award. This award was not contested and should have resolved one of the issues.

Factually, there was no finding that the Branch Manager had competed unfairly while still working with RBC so there was no basis for an award on this issue.

The major dispute was over the issue of an implied duty of good faith owed by the Branch Manager to RBC. As Justice Abella pointed out, the Branch Manager and the other employees had not signed any restrictive covenants. In fact, during the trial, RBC representatives had expressly stated that they had not asked the employees to sign restrictive covenants when they were hired because it would make recruiting difficult. Under Canadian law, the Branch Manager and the other employees therefore should have been free to leave and work elsewhere unless they breached a duty of confidentiality or some other duty when leaving.

According to Justice Abella, RBC was asking the Supreme Court to provide it with greater protection than it had tried to obtain from its employees when they were first hired. All Court levels had agreed that these were not “fiduciary employees” and would not be subjected, under Canadian law, to heightened duties of fiduciary employees. As a result, in normal circumstances, any one of the employees could have left to go and work for a competitor with little concern. But here the Supreme Court of Canada still imposed a duty of “good faith” on the Branch Manager – even though he was not a fiduciary and had not signed a restrictive covenant.

In responding to the majority decision, Justice Abella angrily points out that employees in Canada are not “indentured servants”. They should be free to move freely from one workplace to another unless they signed a reasonable, legally enforceable restrictive covenant when they first started working for the employer.

The trend for a number of years from appellate court decisions across Canada has been to make it increasingly difficult for employers to restrict the movement of employees from one workplace to another. While courts have been willing to go to extraordinary lengths to protect confidential information, they have generally been unwilling to sustain unnecessary restrictions on employees that prevent them from moving around.

This majority decision opens up a range of claims for employers. Even without signed non-solicitation or signed non-competition agreements, employers may now sue departing employees and argue that they have breached duties of good faith – simply by going to work for competitors. The decision is potentially far reaching and is likely to lead to significant litigation brought by employers against former employees.

Gender Discrimination Class Action against Walmart is Struck Down by the U.S. Supreme Court

Gender Discrimination Class Action against Walmart is Struck Down by the U.S. Supreme Court

Can a large group of employees use the Class Action process to sue for discrimination in the U.S.? Yes, they still can, though they face significant hurdles. In a landmark decision, issued on June 20, 2011, the U.S. Supreme Court ruled against a group of present and former Wal-Mart employees who had brought a claim for gender discrimination. The members of the Court split along ideological and philosophical lines. The majority opinion, penned by Justice Scalia, rejected the use of the Class Action process for this type of claim. The Court held that there was insufficient commonality between the various plaintiffs who would be making claims of discrimination.

The plaintiffs were alleging that Wal-Mart’s policy of giving local supervisors discretion over employment matters resulted in a disproportionate negative effect on women who were promoted less frequently than men. Wal-Mart maintained that it had a policy in place banning gender discrimination. It also maintained that its policy of giving supervisors discretion was gender neutral. However, as the minority opinion pointed out, women fill 70% of the hourly jobs in Wal-Mart’s stores but make up only 33% of management employees. The plaintiffs also demonstrated that women are paid less than men in every region of the country in similar positions and that Walmart’s statistics were less favourable than other retailers.

Though the plaintiffs could not point to a specific policy directive that would violate anti-discrimination legislation or a specific person or group responsible for creating the discriminatory results, they were able to show that there was evidence of significant gender discrimination, across the country and it was not being addressed.

The Supreme Court majority rejected these arguments. It was of the view that the plaintiffs were seeking to “sue about millions of employment decisions at once. Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members’ claims for relief will produce a common answer to the crucial question why I was disfavoured.” Politically, the voice of the Court majority is heard most clearly in its general assumptions about gender issues. As Justice Scalia writes, “…left to their own devices most managers in any corporation – and surely most managers in a corporation that forbids sex discrimination – would select sex-neutral, performance based criteria for hiring and promotion that produce no actionable disparity at all.” In other words, most of the male managers, who make up 70% of management, are not likely to discriminate in making promotion decisions about others even though the process by which they have been promoted may have been flawed and even discriminatory.

With an entirely different political and philosophical view, the minority naturally saw this issue differently. As Justice Ginsburg writes, “Managers, like all humankind, may be prey to biases of which they are unaware. The risk of discrimination is heightened when those managers are predominantly of one sex, and are steeped in a corporate culture that perpetuates gender stereotypes.” The minority would have permitted the case to move forward as a class action with sufficient commonality found in the issue of whether Wal-Mart’s pay and promotions policies result in unlawful discrimination.

As a result of this decision, litigants alleging discrimination will need to narrow their class definition to be able to rely on a specific policy or decision that affects all of the members of that class. This may well make it extremely difficult for large groups of employees to advance cases of systemic discrimination.

The Canadian legal landscape has a statutory and common law regime that makes Canadian employment law completely different from U.S. law. Although there have been changes to Human Rights legislation across Canada that now permit lawsuits to address discrimination in some jurisdictions instead of complaints with human rights tribunals, we have not yet seen a move to class action discrimination cases of this type.

If this type of case does it make it to the Supreme Court of Canada, it is likely that the decision will be as politically acrimonious among the Court’s members as it was in the U.S., particularly if the current Prime Minister further politicizes the Court by selecting nominees on the basis of ideology rather than competence as the U.S. has done for so many years.

Damages Awarded for Inadequate Response to Harassing Email

Damages Awarded for     Inadequate Response to Harassing Email

To avoid being sexually assaulted, “don’t dress like sluts.” This is one of the pieces of offensive and ill conceived advice provided by a Toronto Police Services officer to a group of York University Students at Osgoode Hall Law School in Toronto on January 24, 2011. The comment outraged students and generated significant negative publicity. According to numerous reports, the officer subsequently sent a letter of apology to the faculty and students and faced some internal discipline. The controversy sparked a “slut walk” in Toronto in early April, at which close to 1,000 marchers walked to Toronto police headquarters to protest the blame the victim mentality towards sexual assaults.

Having a poorly trained or insensitive officer on the front lines in an assault or harassment situation does not meet a reasonable police standard. But in an employment context, it can also give rise to legal liability and damage awards.

In a recent case involving Nipissing University, a professor was awarded $9,950 by the Ontario Human Rights Tribunal when the University was found to have been less than fully diligent in pursuing a harassment complaint.

The professor, who was seven months pregnant at the time, received an anonymous, sexually offensive and threatening email, purporting to be from one of her students. The email was traceable to one of the University’s library computers though the sender was never found. The University had freely available computers in its library with no log in ID required and no surveillance in many of the computer areas.

The University was found to have taken the complaint seriously and to have made some initial efforts to investigate. However, when the professor went to meet with campus security to discuss the matter, she was told “if it makes you feel any better, this isn’t the worst case I’ve seen.” Though perhaps intended by the officer as an effort to console her, the words had the effect of belittling her and leaving her feeling that campus security was not about to take this matter seriously. Due to the content of the email, she was concerned for her safety for the safety of her unborn child.

Although the Tribunal found that the University fulfilled many of its obligations including its general duty to provide a safe work environment and to take this kind of complaint seriously, the University was held to have “failed to remain diligent in pursuit of the matter.” Its policies and procedures for dealing with matters of sexual harassment were found to have been “inadequate to deal with the offensive and threatening email.”

While this is not one of the largest monetary awards that the Tribunal has issued, it is recognition by the Tribunal that employers have a wide ranging obligation to protect their employees from sexual harassment and assault. This includes the requirement to have proper procedures and processes in place for investigating and addressing complaints. Employers must use properly trained officers who are knowledgeable and sensitive and know how to respond to harassment, threats or to an assault. Most significantly, failure to meet these standards may be a breach of the Ontario Human Rights Code and can give rise to awards for damages.

After the incident at York University and the Nipissing University decision, employers should redouble their efforts to ensure that they have proper policies and procedures in place to prevent sexual harassment and assault and to address complaints appropriately. Most importantly, they must ensure that they have properly trained staff to implement the procedures and policies.

Wrongful Dismissal: Punitive and Bad Faith Damages Scaled Back Dramatically: Keays v. Honda

Wrongful Dismissal: Punitive and Bad Faith Damages Scaled Back Dramatically: Keays v. Honda

In 2008, the fourth decision of the Supreme Court of Canada (as reviewed in this series of articles) was the most widely anticipated decision. Many employment lawyers and commentators were predicting that the Supreme Court would issue a wide ranging decision that would expand the availability of punitive damages for dismissed employees. Contrary to the expectations of many, the decision scaled back dismissal damages, changed the nature of “bad faith claims” and focused on the particular facts of the case that was before the Supreme Court.

Keays had worked for Honda for 11 years before being diagnosed with Chronic Fatigue Syndrome. He was off work for a period of time on disability benefits and then returned. He continued to require frequent absences from work. Honda followed up by asking Keays to meet with its own medical specialist. Keays refused because Honda would not provide an explanation of the specialist’s purpose, methodology and parameters of the intended meeting. Keays was worried that Honda was simply trying to use its own favoured doctor to assit Honda to force Keays back to work without a proper detailed review or understanding of the circumstances. After Keays continued to refuse to meet with Honda’s specialist, he was dismissed by Honda.

At trial, Keays was awarded 15 months pay for wrongful dismissal. The Trial Court also held that Honda had committed acts of discrimination, harassment and misconduct. It increased the notice period to 24 months and awarded punitive damages of $500,000, which would have set a new standard in Canadian employment law decisions. The Court of Appeal of Ontario reduced the punitive damages awarded to $100,000. Honda appealed to the Supreme Court of Canada.

In a 7-2 decision, the Supreme Court of Canada eliminated the bad faith damages and the punitive damages that had been awarded to Keays. It upheld a finding that Keays had been wrongfully dismissed and was entitled to 15 months’ compensation. However, it eliminated all other damages that Keays had been awarded at the Trial Court level.

The Keays v. Honda decision is very significant because it has redefined the damages that are available to dismissed employees. Since the Supreme Court of Canada’s decision in Wallace v. United Grain Growers in 1997, Canadian Courts have been awarding damages for bad faith conduct by employers in wrongful dismissal situations. Courts have awarded these damages by extending the notice period to which employees are entitled – where employees are treated in a bad faith manner. In Keays v. Honda, the Supreme Court has changed Wallace and has redefined when damages will be available.

The first noteworthy point is that the Supreme Court of Canada extensively reviewed the facts of the case. Although the Supreme Court has stated on numerous occasions that its job is not to review factual details of cases, Keays v. Honda is very much a decision in which the Supreme Court scrutinizes almost all of the factual findings made by the Trial Court and proceeds to reverse the Trial Court’s findings and conclusions. The Supreme Court defines the Trial Court’s findings as “palpable and overriding”. In using this wording, the Supreme Court cloaks itself with the judicial prerogative to make entirely different factual conclusions than those made by the Trial Court.

Essentially, the Supreme Court took a very different view of the manner in which Honda had treated Keays. It held that none of the “four foundations” for bad faith damages as held by the Trail Judge were valid. The Supreme Court went through its interpretation of the facts in detail. It concluded that Honda was trying to rely on expert advice and was not being “callous” or insensitive. It rejected the Trial Judge’s conclusion that Honda had set Keays up for failure or that Honda was taking a “hardball” approach. It also rejected the Trial Court’s conclusions that Honda had decided to stop accepting medical notes from Keays as a reprisal against Keays for seeking legal advice. Finally, the Supreme Court rejected the notion that Keays’ disability after dismissal was caused by the manner of his termination.

Once the Supreme Court came to such a dramatic reversal of the factual findings and conclusions of the Trial Court, Keays’ legal case had been eviscerated. With the Supreme Court’s factual findings that Honda had acted appropriately, there was no remaining basis for considering or discussing bad faith or punitive damages. Even so, the Supreme Court proceeds to analyze these types of damages and makes pronouncements that are intended to apply to future cases.

The Supreme Court makes a number of points:

Damages for mental distress should only be awarded where they were contemplated by the parties at the time the contract started. In most cases, employees expect to be dismissed eventually, so mental distress damages for hurt feelings should not be awarded simply because the employees have been dismissed.

Employers still have an obligation of good faith and fair dealing in the manner they dismiss employees. If employers breach this duty, then employees are entitled to damages – as long as they can prove that they have suffered actual damages. According to the Supreme Court, employees are no longer entitled to an extension of their notice period simply because of this type of bad faith treatment.

Punitive damages are only to be awarded where the acts by the employer are “so malicious and outrageous that they are deserving of punishment on their own”. Breach of the Human Rights Code, for example, is not sufficient on its own to warrant an award of punitive damages.

The crux of Keays v. Honda is spelled out by Justice Bastarache who accepts that the need of employers to “monitor the absences of employees who are regularly absent from work is a bona fide work requirement in light of the very nature of the employment contract and responsibility of the employer for the management of the workforce”.

The majority decision of the Supreme Court is devoid of any language that is empathetic to employees. Much like the Supreme Court’s other 2008 decisions in RBC and Hydro-Quebec, the majority focus is on the need for employers to be able to run their businesses efficiently. The Supreme Court in Keays v. Honda makes it dramatically more difficult for dismissed employees to obtain damages for bad faith – and even more difficult to ever obtain punitive damages.

Justice Lebel delivers a partial dissent to the reasons of Justice Bastarache. Surprisingly, Justice Abella sides with the majority even though she was the lone dissenting voice in both Evans and RBC. Only Justice Fish supports Lebel in the dissenting view. Justice Lebel concludes that the extended damages that had been awarded to Keays at the Trial Court level should have been upheld. Justice Lebel notes that the trial in this case lasted 30 days. The Trial Court heard extensive evidence and was best positioned to make factual findings and conclusions. Justice Lebel disagrees that the Supreme Court should overturn so many findings of fact that were “generally supported by the evidence”.

The most significant gap between the majority and the minority decisions in Keays v. Honda is the extent to which the judges are prepared to review and wholly revise factual findings and conclusions. Since Bastarache and Lebel come to such contrasting views of the factual background, it is not surprising that they have completely different approaches to the applicable law afterwards.

The minority agrees with the majority’s approach to redefining bad faith damages. However, the minority would have upheld the damages for bad faith that were awarded by the Trial Judge on the basis of Honda’s conduct and the harm it caused to Keays. The minority would have also left the door open for litigants to argue that breaches of human rights legislation can lead to awards of extended damages.

Conclusion – Effect of Keays v. Honda Yet to be Determined

The full effect of Keays v. Honda remains to be determined. The Supreme Court has dramatically altered the existing landscape. Courts should no longer award simple notice period extensions as a result of breach of the duty of good faith. But damages for breach of good faith are still available. In fact, it is arguable that the amount of damages that can now be awarded for breach of the duty of good faith may be much higher than the amounts that were previously being awarded. However, to get these damages, dismissed employees will have to have evidence to show that they have suffered losses as a result of their former employer’s actions.

Employer’s Obligation to Accommodate Disabled Employees is Limited: Hydro-Québec

Employer’s Obligation to Accommodate Disabled Employees is Limited: Hydro-Québec

In August 2008, the Supreme Court of Canada issued a relatively short and unanimous decision addressing the issue of frequent absences and discussing the obligations of employers in handling these absences.

This case originally came from an arbitrated dispute involving a union. The employee had a lengthy record of absences – missing 960 days of work over a span of 7 years. The employer had adjusted working conditions to try to meet the employee’s needs but these efforts had not been entirely successful. Eventually, the employee brought a physician’s note indicating that she would “no longer be able to work on a regular and continuous basis without continuing to have an absenteeism problem”. The employer dismissed the employee, who then filed a grievance. At arbitration, the arbitrator held that the employee was unable to work for the foreseeable future, as required, and the employer had no further obligations. The case made its way up to the Supreme Court of Canada after the Québec Court of Appeal overturned the lower Court decision and sided with the employee.

The Supreme Court of Canada discussed the concept of “undue hardship” when an employer is required to accommodate a disabled employee. Employers must be flexible in adopting a standard that is appropriate – to ensure that the employee can work. However, the employer does not need to “alter the essence of the contract of employment”. Employers should be required to offer their employees variable work schedules, lighten work loads or authorize shift transfers if these steps can be taken to accommodate the needs of disabled employees.

The Court noted that if an employee’s illness means that “the proper operation of the business is hampered excessively or if an employee with such an illness remains unable to work for the reasonably foreseeable future even though the employer has tried to accommodate him or her, the employer will have satisfied the test” and will not be required to keep the employee any longer.

The Supreme Court’s decision in this case is not strikingly different from existing case law dealing with disabled employees. Employers have never been required to provide that it is “impossible” to accommodate a disabled employee. Employers should not be required to create entirely new positions or put up with inappropriate levels of chronic absenteeism. Although this decision is another victory for employers, it was a unanimous decision of the Supreme Court of Canada which did not fundamentally change the law.

The one concern that employees may have however, is the absence of genuine empathy in the decision in reviewing the case history. Where Supreme Court of Canada decisions in the past have focused on “vulnerable employees” and the sheer gap in bargaining power between employees and employers, this Supreme Court of Canada decision is most concerned with employer needs to carry on business efficiently and productively.

Perhaps it is too early to assess the impact of this type of thinking on other factual scenarios, but this decision is one of a number of significant decisions issued by the Supreme Court in 2008. All of the decisions sided with employers. Looking at the language used in Hydro-Quebec and the results of the other decisions, employees in Canada certainly have cause to worry about what other decisions might be coming down the pipeline.

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