Library:
No Implied Duty Not to Compete
Published in the February 2007 issue of Litigation Notes - View Article
In the recent RBC Dominion v. Merrill Lynch decision, the B.C. Courts answered the question “what is the proper balance between the rights of an employer (here, a brokerage firm), and its employees (here, investment advisors), upon the employees leaving their employment?”
Justice Southin and Justice Finch of the British Columbia Court of Appeal concurred in the result, with Justice Rowles dissenting, finding that an employee owes an employer proper notice in leaving the employment as well as any other contractual duties, but owes no “implied” duties. This case changes the law regarding departing employees, allowing departing employees to take client names and addresses with them (but no other client documents) and, where an employment contract does not contain non-competition or non-solicitation clauses, refuting any duty upon the employee to “act reasonably” after having left an employer.
In 2000, a number of employees at RBC Dominion Securities left en masse to work for Merill Lynch, RBC’s chief competitor. The departing employees gave RBC no notice of their departure and also took client records with them. RBC sued the ex-employees and Merrill Lynch for breach of contract, breach of confidence, breach of fiduciary duty, conspiracy and inducing breach of contract, among other causes of action.
The trial judge found for RBC and awarded over $2.2 million in damages against the employees and Merrill Lynch for:
1) breaching their implied duties to provide notice of their departure to RBC,
2) breaching their implied duties to not compete unfairly with RBC in trying to move clients to Merrill Lynch and in removing client records, and
3) in the case of Merrill Lynch, inducing the breaches of the duties set out above.
The trial judge awarded damages against the employees and Merrill Lynch for RBC’s losses during the notice period and for five years into the future on a discounted basis. Punitive damages of more than $250,000 were also awarded against the investment advisors and Merrill Lynch.
The Court of Appeal overturned the trial judges findings regarding implied duties to “not compete unfairly” once the employees had left their employment, stating:
“ . . . there is no such thing on the part of a servant, upon leaving his master’s employ, as an obligation not to compete “unfairly”. Such a broad open-ended legal duty, whether treated as an implied term of a contract of service or as some obligation outside the contract but imposed by law, would be dependent for its scope on the length of any particular judge’s foot.”
The Court of Appeal also found that the departing employee could take client contact information with him, in order to contact his clients and inform them of the move. The Court found that the client is entitled to know immediately if his advisor is leaving a firm, in order that the client can then choose whether to remain with the firm or move with the advisor, without any interruption in service.
The Court of Appeal did uphold the damage awards against the advisors for loss of profits during the notice period and for punitive damages, for the breaches of confidence committed in taking client documents from RBC (and Merrill Lynch’s encouragement of this practice), reducing the damages amounts to around $300,000.
RBC Dominion Securities v. Merrill Lynch [2007] B.C.J. No. 48 (B.C.C.A.)