Employment Law

Duties Owed By Departing Employees

By Carmen Cheung

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

A recent Supreme Court of Canada decision articulates the duties owed by departing employees to their employers. In November 2000, the branch manager and almost all of the investment advisers of RBC Dominion Securities Inc.'s office in Cranbrook, B.C. left to join the local branch office of Merrill Lynch Canada Inc. The Merrill Lynch branch manager, working with the RBC branch manager, recruited the RBC investment advisors to join Merrill Lynch. They all left RBC without providing notice, and in the weeks preceding their departure, they copied and transferred RBC's client records to Merrill Lynch. RBC's Cranbrook office all but collapsed as a result of these events.

RBC sued its former employees, claiming compensatory, punitive and exemplary damages. It also sued Merrill Lynch and the branch manager at Merrill Lynch's Cranbrook office.

Merrill Lynch manager had contractual duty of good faith

On appeal were two issues. First, the Court considered whether the Court of Appeal appropriately vacated the Supreme Court of British Columbia's decision to award RBC $1,483,239 in damages against the RBC branch manager for breach of his contractual duty of good faith for his role in recruiting virtually all of RBC's investment advisors in its Cranbrook office to Merrill Lynch. The SCC found that while no fiduciary relationship existed between the branch manager and RBC, he did have a contractual duty of good faith, and reinstated the trial court's award.

The SCC then considered whether the Court of Appeals appropriately vacated the trial court's decision to award damages against the investment advisors and Merrill Lynch for breach of a duty not to compete unfairly.

Non-fiduciary employee is free to compete against former employer

In its Oct. 9, 2008 decision, the SCC found that no fiduciary relationship existed between RBC and its investment advisors. Accordingly, once the employment relationship was terminated, the non-fiduciary employee was liable only for failure to give reasonable notice and for breach of specific residual duties, such as the duty not to misuse confidential information. However, there was no independent implied duty not to compete, absent a contractual covenant not to compete. Thus, the SCC held that a non-fiduciary employee is free to compete against his or her former employer, even during the notice period.

While not under appeal, the additional awards made by the SCBC to RBC are of interest. RBC was awarded $40,000 in damages for breach of the implied term in the investment advisors' and branch manager's contracts to provide reasonable notice of termination. RBC was also awarded punitive damages of $5000 payable by each investment advisor, an additional $5000 payable by the branch manager, $250,000 payable by Merrill Lynch, and $10,000 payable by Merrill Lynch's branch manager.