In the recent decision of the Supreme Court of Canada (SCC) in
RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc.
(2008 SCC 54), the SCC confirmed that there is no general duty owed
by departing employees to refrain from competing against their
former employer; however, employees do have an implied duty to
provide reasonable notice of resignation and to act in good
RBC Dominion Securities Inc. (RBC) and Merrill Lynch Canada Inc.
(Merrill Lynch) both had offices in Cranbrook, British Columbia,
and each was the other's main competition in the investment
brokerage business. In November 2000, without any advance notice,
virtually all of the investment advisors at RBC left and went to
Merrill Lynch. Among the advisors to leave RBC was the branch
manager who had coordinated the mass exit. As a result of the
departure, only two junior investment advisors and two
administrative staff members remained at the branch. In addition,
in the preceding weeks before the advisors left RBC, several of
RBC's client records were surreptitiously copied and
transferred to Merrill Lynch.
Lower Court decisions
At the trial, the judge awarded damages in RBC's favour,
finding that the individual advisors had breached their requirement
to give reasonable notice of resignation and misappropriated
confidential information. The trial judge also awarded $225,000
against the individual advisors for unfairly competing against RBC
after their employment had ended and, $1,483,239 against the branch
manager for breaching his implied duty of good faith.
The British Columbia Court of Appeal agreed with the award of
damages for failure to give proper notice of resignation and for
taking confidential information to Merrill Lynch; however, the
Court of Appeal overturned the $225,000 damage award, noting that
there was no obligation on the advisors to compete fairly following
the end of their employment. The Court of Appeal also overturned
the $1,483,239 awarded against the branch manager.
Supreme Court of Canada decision
RBC appealed the Court of Appeal's decision, arguing that
both damage awards should be reinstated. At the trial level, the
judge had found that even though the employees were not subject to
express written restrictions, they continued to be under a general
duty not to compete with their former employer following the end of
The SCC disagreed with trial judge, stating that:
The contract of employment ends when
either the employer or the employee terminates the employment
relationship, although residual duties may remain. An employee
terminating his or her employment may be liable for failure to give
reasonable notice and for breach of specific residual duties.
Subject to these duties, the employee is free to compete against
the former employer.
The SCC ultimately agreed with the Court of Appeal on this point
and concluded that it was wrong to award damages on the basis that
the employees continued to be under a duty not to compete.
The SCC, however, did reinstate the trial judge's award of
$1,483,239 in damages against the branch manager for breaching his
duty of good faith by orchestrating the mass exodus to Merrill
Lynch. The Court concluded that it was an implied term of his
contract to retain the employees of RBC who were under his
supervision and that by organizing their mass exit, he breached his
duty of good faith.
The SCC agreed with the decisions of both lower courts and
concluded that employees have an implied obligation to give
reasonable notice of termination, noting that a notice period of
2.5 weeks was appropriate. The award of punitive damages, for
disclosure of the confidential information, was also upheld.
The benefit of this decision to employers is that it recognizes
that an employee may be held liable for failure to give reasonable
notice of his or her termination depending on the circumstances.
Employers also now has the ability to argue that employees with
responsibilities similar to the branch manager, have a duty of good
faith, which, in this case, was breached by organizing a mass
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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