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Court of Appeal Reduces Employer’s Damages for Group Departure
February 1, 2007

The defendants, a group of investment advisors and their manager, left their employer to work for a competitor. The BC Supreme Court found each of the defendants liable to their former employer for damages ranging from $1,000 to $1.5 million. In a recent decision the BC Court of Appeal significantly reduced those damages, rejecting the trial court’s conclusion that employees have an implied obligation not to compete “unfairly” with their former employers. The Court concluded that there is no such open-ended legal duty because it cannot be precisely defined and individuals have a right to make a living.

The decision may mark a change in the law with respect to the information that a departing employee is permitted to take from his employer. Prior to this case, employees who moved to a new, competing employer could normally only use information about their clients and business that they could recall from memory; they could not take employment related paper or electronic records with them. However, the Court of Appeal found that the departing investment advisors were allowed to prepare a written list of their clients from the employer’s records, including names, addresses and telephone numbers. Future cases will determine whether this new standard applies only to investment advisors and employees in similar positions, or to other employees as well.

The Court also held that damages for breach of confidentiality could not be sustained because there was no evidence linking any such breach to a loss of business by the former employer. In addition, damages for the employees’ failure to give reasonable notice of resignation should be based only on the commissions that the employees would have earned during the notice period, rather than on the employer’s “loss of profits for some years to come”. Finally, the Court found that the manager’s liability should not have been calculated differently than that of the rest of the staff by virtue only of his position.

RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al, 2007 BCCA 22