Employees May Be Required to Give Reasonable Notice of Resignation
Posted: 12.08.2015
By: Earl Altman, Employment Lawyer
In a decision rendered by the Ontario Superior Court of Justice in September 2009, four employees were found liable for damages for wrongful quitting.
In this case, the four defendants were all senior employees working for GasStops Limited. GasStops was a company that provided maintenance of gas turbine engines for boats and airplanes. All four of the employees resigned within two weeks of each other. Following their resignations, two of the defendants incorporated a new company. A week later, the other two defendants commenced employment with that company. Over the course of the next three months, a further fifteen employees of the plaintiff company resigned from the company and joined the defendants. The effect on the plaintiff company was, obviously, disastrous.
The plaintiff sued the four former employees and their company for damages for breach of fiduciary duty, breach of various other duties not to compete or solicit, and breach of the obligation to give reasonable notice of termination.
The trial judge determined that all four of the defendants were, in fact, key employees of the plaintiff. They therefore owed the plaintiff a fiduciary duty. A fiduciary duty is defined as a duty to act in the best interests of another party. In this case, obviously, it was the former employer’s positions that the former employees owed it a duty to refrain from taking steps which would harm the company.
In finding that all four of the employees were fiduciaries, the trial judge relied on the leading case of Canada Aero Services Limited v. O’Malley. In that case, the Supreme Court of Canada held that an employee would be considered a fiduciary employee where he has the scope to exercise some discretion or power over the affairs of the company, and that the employee can unilaterally exercise that power or discretion to affect the interests of the company. The Court in Canadian Aero also held that the company must be particularly vulnerable to the actions of the fiduciary.
Having found that the four employees were, in fact, fiduciaries, the judge went on to conclude that, given the positions occupied by these four individuals, they owed their employer a significant amount of notice of their intention to leave. The judge looked to the effect which the departure of these employees had on the operations of GasStops and concluded that the employees owed GasStops at least ten to twelve months notice. The judge based his conclusion on the evidence presented by GasStops as to the reasonable amount of time it would require to replace all four of these people in the specialized industry in which they operated.
It no doubt affected the judge’s conclusions that he found that all four of the defendants had actively solicited the existing and perspective customers of GasStops with whom they had dealt while in GasStops’ employ. In particular, the judge found that the employees had used their former status as employees of GasStops to attempt to induce the customers of GasStops to transfer their business to the new entity. The judge found that it is clear law that a fiduciary may not solicit the customers or perspective customers of his former employer.
In crafting a remedy, the judge found that, given the length of time that it has taken to get the case to trial, granting an injunction at that stage would be of little use. Rather, the judge ordered the defendants and their company to account to the plaintiff for all profits earned as a result of the use of the confidential information and breach of the fiduciary duties. He found this liability both on the new company and on all of the individual defendants equally.
The judge therefore granted judgement against all of the defendants jointly and severally in the sum of $11,401,571.
It should be pointed out that this was one of the longer employment law trials, having lasted 295 days. There were close to 3,000 exhibits tendered by the parties, and closing submissions exceeded 3,000 pages. It is for that reason that the decision itself ran close to 700 pages.
If you have any questions regarding the information in this Newsletter, please contact Earl Altman, or any of the other lawyers in ouroffice@ealtman@garfinkle.com
In a decision rendered by the Ontario Superior Court of Justice in September 2009, four employees were found liable for damages for wrongful quitting.
In this case, the four defendants were all senior employees working for GasStops Limited. GasStops was a company that provided maintenance of gas turbine engines for boats and airplanes. All four of the employees resigned within two weeks of each other. Following their resignations, two of the defendants incorporated a new company. A week later, the other two defendants commenced employment with that company. Over the course of the next three months, a further fifteen employees of the plaintiff company resigned from the company and joined the defendants. The effect on the plaintiff company was, obviously, disastrous.
The plaintiff sued the four former employees and their company for damages for breach of fiduciary duty, breach of various other duties not to compete or solicit, and breach of the obligation to give reasonable notice of termination.
The trial judge determined that all four of the defendants were, in fact, key employees of the plaintiff. They therefore owed the plaintiff a fiduciary duty. A fiduciary duty is defined as a duty to act in the best interests of another party. In this case, obviously, it was the former employer’s positions that the former employees owed it a duty to refrain from taking steps which would harm the company.
In finding that all four of the employees were fiduciaries, the trial judge relied on the leading case of Canada Aero Services Limited v. O’Malley. In that case, the Supreme Court of Canada held that an employee would be considered a fiduciary employee where he has the scope to exercise some discretion or power over the affairs of the company, and that the employee can unilaterally exercise that power or discretion to affect the interests of the company. The Court in Canadian Aero also held that the company must be particularly vulnerable to the actions of the fiduciary.
Having found that the four employees were, in fact, fiduciaries, the judge went on to conclude that, given the positions occupied by these four individuals, they owed their employer a significant amount of notice of their intention to leave. The judge looked to the effect which the departure of these employees had on the operations of GasStops and concluded that the employees owed GasStops at least ten to twelve months notice. The judge based his conclusion on the evidence presented by GasStops as to the reasonable amount of time it would require to replace all four of these people in the specialized industry in which they operated.
It no doubt affected the judge’s conclusions that he found that all four of the defendants had actively solicited the existing and perspective customers of GasStops with whom they had dealt while in GasStops’ employ. In particular, the judge found that the employees had used their former status as employees of GasStops to attempt to induce the customers of GasStops to transfer their business to the new entity. The judge found that it is clear law that a fiduciary may not solicit the customers or perspective customers of his former employer.
In crafting a remedy, the judge found that, given the length of time that it has taken to get the case to trial, granting an injunction at that stage would be of little use. Rather, the judge ordered the defendants and their company to account to the plaintiff for all profits earned as a result of the use of the confidential information and breach of the fiduciary duties. He found this liability both on the new company and on all of the individual defendants equally.
The judge therefore granted judgement against all of the defendants jointly and severally in the sum of $11,401,571.
It should be pointed out that this was one of the longer employment law trials, having lasted 295 days. There were close to 3,000 exhibits tendered by the parties, and closing submissions exceeded 3,000 pages. It is for that reason that the decision itself ran close to 700 pages.
If you have any questions regarding the information in this Newsletter, please contact Earl Altman, or any of the other lawyers in ouroffice@ealtman@garfinkle.com
