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.

Forced to Return to Work After Being Wrongfully Dismissed: Evans v. Teamsters Local Union No. 31

2008 was not a banner year for employee rights in Canada. The Supreme Court of Canada issued four employment law decisions all of which sided in favour of employers. Viewed collectively, the decisions show a pendulum shift by Canada’s highest Court away from protecting the rights of “vulnerable employees” and towards providing employers with greater freedom to manage and protect their workplaces. Losing these networking opportunities can be devastating. Attending these functions after being dismissed can be difficult and disheartening. Since many of us define ourselves to some degree by our work, unemployment creates a loss of part of our identity. The Supreme Court of Canada has recognized this problem, referring to work as an essential component to our sense of identity, self-worth and emotional well-being.

The decisions are likely to generate a high volume of litigation as employees and their former employers struggle to demarcate the new boundaries over some significant issues. The challenge for dismissed employees will be to find creative ways of getting around some of the implications of these decisions, while ensuring that their own conduct does not run afoul of the technical requirements of some of these cases.

This four part series of articles reviews and comments on these decisions.

Evans v. Teamsters Local Union No. 31Forced to Return to Work after being Wrongfully Dismissed

The Supreme Court’s 6-1 decision in Evans v. Teamsters is one of the harshest, pro-employer decisions issued by this Court in quite some time. Although the particular facts in this case probably narrow the implications of the decision, the Supreme Court nevertheless provides some comments which will concern many dismissed employees.

Evans had worked for the Teamsters for more than 23 years as a business agent in Whitehorse. He was dismissed following the election of a new union executive, which he had opposed during the union’s election process. The union terminated Evans’ employment and then asked to open negotiations. When the parties could not come to a deal, the union insisted that Evans return to work for 24 months of “working notice”. Evans refused to return to work. The union took the position that he had failed to “mitigate his damages” by refusing to return to work for the notice period.

The majority of the Supreme Court indicated that the appropriate question in this circumstance is whether a reasonable person would agree that the dismissed employee should be expected to return to work for his or her employer in all of the circumstances after being dismissed. The Court cited the requirement to consider work atmosphere, stigma and loss of dignity as well as nature and conditions of employment. However, the Court held that these questions should all be resolved by looking at an “objective” standard rather than a “subjective one”.

In this particular case, Evans had a number of concerns that would seem to have justified his concerns about returning to the workplace. After all, he had been dismissed by a newly elected union executive after siding with the losing side in a hotly contested election. He had what appeared to have been genuine concerns that the workplace would have been poisoned for him. These issues were all reflected in findings by the Trial Court.

Instead of accepting the Trial Court’s findings, the Supreme Court and the Court of Appeal overturned these factual findings even though that is generally not the focus of an Appellate Court. In particular, the Supreme Court focused on a letter that Evans had written in which he had said that he was willing to return to work if certain preconditions were met. Ultimately, the Supreme Court made a factual finding that “the relationship between Evans and the Union was not seriously damaged” and, “given that the terms of employment were the same, it was not objectively unreasonable for him to return to work to mitigate his damages”.

Justice Abella was the lone dissenting judge – and the lone glimmer of hope for dismissed employees facing this type of situation. She highlighted the fact that the Trial Court Judge had found nine reasons why it would be unreasonable for Evans to return to work and that generally it is not an appellate court’s role to overturn these types of facts.

For Justice Abella, the major issue here was whether or not it would be reasonable for Evans to be required to return to work. Justice Abella noted that employees cannot be forced to work against their will – and to continue to be required to work in an atmosphere not conducive to appropriate “personal relations” would be inconsistent with the law as it currently stands.

The end result as summarized by Justice Abella was that Evans was in effect fired twice. First he was fired without cause, which should have meant providing him with a reasonable notice period. Then he was dismissed with cause and not paid anything for refusing to return to work for the employer that had chosen to dismiss him. The conclusion is that a 22 year employee is left with no compensation because of the way he was dismissed and manipulated by his former employer.

As a practical matter, it may well be true that few employers will want to have their dismissed employees return to work for a lengthy notice period – especially where they have already chosen to issue a notice of dismissal instead of providing the employee with a period of working notice. However, employers may be able to use the Evans decision as a bargaining lever by threatening to recall employees to work out a notice period if they refuse to accept severance arrangements. Dismissed employees will have the obligation of showing why it would be objectively unreasonable to have to return to work for the employer that has just dismissed them

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