Date: Tue, 28 Oct 2008 04:26

From: Kelvin Low

Subject: New SCC decision

This is a somewhat belated follow-up to Jason's e-mail.

I am curious as to what colleagues think about the unanimous dismissal (by both the Supreme Court and the Court of Appeal) of the trial judge's award of $225,000 for loss of profits against the other investment advisors due to unfair competition during the notice period that should have (but was not) given. According to the majority, this is because once an employee terminates his employment, he is free to compete with his former employer. But that is surely only true if he lawfully terminates his employment.

If (as here), the court decides that the employment has not been properly terminated (because reasonable notice had not been given), surely the employee is not free to compete. Wouldn't he simply be in the same position as an employee who competes without purporting to terminate? I wonder how the $40,000 award made on the basis that the employees should have contributed to revenue during that period can be consistent with the dismissal of the $225,000 award for losses caused through action taken during that period inconsistently with the contract. Either the employee was obliged to continue in employment during that period or he wasn't, right? Or am I missing something? Can an employment contract with a notice requirement be properly terminated by an employee without giving notice, or by giving a shorter period of notice than contractually required? Because surely the same result should follow whether the notice period is implied or express. If so, why?

Regards,

Kelvin Low
Assistant Professor
The University of Hong Kong

2008/10/17 Jason Neyers  

Dear Colleagues:

Some of you might be interested in the SCC's decision in RBC Dominion Securities v Merrill Lynch which has discussions of remoteness in contract law and the duties owed by managers. From the headnote:

In a move which D, the Cranbrook RBC branch manager, helped to coordinate, virtually all the investment advisors at that branch left without notice for the branch of its competitor, Merrill Lynch. RBC sued D and its other employees who left, claiming compensatory, punitive and exemplary damages. It also sued Merrill Lynch and its manager. The Supreme Court of British Columbia held that: (1) the former employees breached the implied terms of their employment contracts requiring reasonable notice and prohibiting unfair competition with RBC; and, (2) D had breached his contractual duty by coordinating the departure and by failing to inform RBC management. D and the other investment advisors were not found to be fiduciary employees. The trial judge not only assessed damages against both D and the employees for RBC losses but also found Merrill Lynch jointly and severally liable for the award as it had induced the employees’ breach of their implied duty not to compete unfairly. The majority of the Court of Appeal varied some of these damages. At issue were whether the Court of Appeal properly overturned the award of damages against the former RBC employees and Merrill Lynch and its manager for losses caused over a five‑year period and whether it properly set aside the award against D on the finding of breach of a contractual duty of good faith.

Held (Abella J. dissenting in part): The appeal should be allowed in part. The trial judge’s award should be reinstated with the exception of the damages the trial judge found payable by the investment advisors for losses due to unfair competition based on their actions during the reasonable notice period.

I would be interested in what others thought of the result since, for what its worth, I find Abella's reasoning to be the more persuasive (i.e. that imposing an enforceable obligation on D to protect RBC’s interests by actively attempting to retain investment advisors within the company represents a novel reformulation and extension of how courts have interpreted and applied a non-fiduciary employee’s duties).

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