Employees: Fiduciaries or Not? The Law Before and After The Supreme Court of Canada Decision in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc
On October 9, 2008 the SCC released its decision in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54. The case considered the duties owed by employees who leave one firm in order to join another in direct competition against the former employer.The parties in question were competitor investment brokerage firms both operating in Cranbrook, B.C. The departing employees of RBC Dominion Securities were essentially influenced by the branch manager to move to Merrill Lynch together with the client records of RBC Dominion Securities.
On appeal to the SCC was the issue of the duties owed by the departing employees to the employer. The Court found that, although the employer was entitled to damages against the departing employees for their failure to provide the employer with reasonable notice prior to termination of the employment relationship, the employees were at liberty to, nonetheless, compete against the employer during the reasonable notice period.
The branch manager who orchestrated the exodus was found liable and the Court affirmed the trial judge’s ruling that the manager breached the duty of good faith owed to the employer which required that he act in the best interests of RBC Dominion Securities as opposed to jeopardizing the firm’s very subsistence.
The SCC’s decision, while not necessarily overruling prior jurisprudence in that traditionally fiduciary and good faith duties have been pinned to high ranking employees, directors and officers, still raises concerns. First and foremost, the Court’s decision signifies that, absent a separate actionable wrong committed by an employee, such as improper use of confidential information, an employee may compete against the employer without significant liability notwithstanding having breached the common law duty to provide reasonable notice. Secondly, the decision places employers without extensive employment agreements or stand alone non-compete and non-solicitation agreements at great risk of financial detriment given the empowerment bestowed upon employees to compete unfairly by copying and transferring customer information. Thirdly, the decision is worrisome from a recruiting firm’s perspective as well. Specifically, a recruiting firm should ensure that, and especially when hiring employees who occupied a high ranking position at a competitor firm, indemnifications are received from the hired employees in order to safeguard against potential liability arising at a later date in connection with the employees’ conduct vis-à-vis the former employer.