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While there may be damages for employee’s lack of resignation notice, there is no reliable substitute for an enforceable restrictive covenant…

resignationA 2016 decision of the BC Court of Appeal is a good reminder to BC employers of the purpose of an employee’s obligation to provide reasonable notice of resignation and, if breached, what an employer can expect to recover. It also underscores the value of an enforceable restrictive covenant.

Background

In 1997, Peter Walker began working as a manager for his aunt and uncle’s business, Consbec Inc., which was based in Ontario and provided blasting and drilling services to the mining, road building, and construction industries. Consbec’s business was based on submitting winning bids for public and private sector clients and did not involve guarantees of repeat business. Following Consbec’s expansion into western Canada in 1999, Mr. Walker took a position as manager at Consbec’s office in Kamloops, BC. Mr. Walker never signed any employment agreement or restrictive covenants with Consbec.

In 2002, Mr. Walker unexpectedly resigned from Consbec, without providing any advance notice. Consbec dispatched two employees to respond to Mr. Walker’s resignation, and discovered evidence that Mr. Walker had been planning to establish a competing business. In the four years following his resignation, Mr. Walker did in fact establish a competing business and obtained a number of blasting and drilling contracts with entities that Consbec considered its clients.

Consbec’s lawsuit

Consbec sued Mr. Walker, claiming he breached his employment contract, as well as his fiduciary and common law obligations, when he resigned without notice and then established a competing business.  In the trial decision, the court found that Mr. Walker was not a fiduciary, as, among other things:

[182]     Peter made no corporate decisions, nor was he asked to participate in corporate meetings. Peter was not party to corporate decisions or policy making policy for Consbec, hiring and firing employees of Consbec, determining salaries or bonuses, or determining non-union wages in his division. He received no company financial records or financial statements, and he was not entitled to do so. On behalf of Consbec, Peter could not sign cheques. He could not direct the payment of accounts electronically, or move and transfer Consbec’s money from its bank accounts. Peter could not influence the payment of accounts or the transfer of funds. Nor could he direct Consbec employees, such as Mr. Sawdon, to make payments or transfer funds. Peter had no corporate credit card.

Rather, the trial judge found that Mr. Walker could best be described as an “estimator”, even though Consbec described him as a manager. The trial judge also found that there was no evidence that Mr. Walker had competed unfairly during his employment or made any improper use of Consbec’s confidential information following his employment. As he was not a fiduciary, did not breach his common law duties of loyalty or confidence and was not subject to any restrictive covenant agreements, the court found there was no limitation on Mr. Walker’s right to quit his employment and immediately compete with Consbec.

The court did find that Mr. Walker breached his notice obligations, noting the “purpose of notice is to provide time for the employer to make arrangements to have the work that the departing employee performed looked after by others, or to find another employee.”  The court held the length of resignation notice is to be determined considering the employee’s “responsibilities, length of service, salary, and the time it would reasonably take the employer to replace the employee” or otherwise address the vacancy. However, the court declined to determine Mr. Walker’s notice period, finding it was too speculative. Instead, the court concluded that Mr. Walker should pay damages based on Consbec’s lost opportunity to make a smooth transition, and awarded Consbec $56,116.11 – the total costs it had incurred in sending its two employees to Kamloops to deal with the fallout of Mr. Walker’s departure. Both parties appealed the court’s decision.

The Court of Appeal’s decision

In the BC Court of Appeal’s decision, the court found the judge’s failure to assess the period of notice that Mr. Walker should have provided Consbec to be an error. Without undertaking this fundamental step, the trial judge was unable to properly undertake the second step of assessing what damages Consbec suffered during the notice period. Agreeing with the trial judge that Mr. Walker was a “manager” in name only, the Court of Appeal found that he should have provided one month of notice of resignation to Consbec.

On the second question, the Court of Appeal noted “the measure of damages is not the cost to Consbec as a result of Peter leaving the company, but the cost to Consbec as a result of Peter’s failure to give notice.” The court found that a number of expenses underlying the trial judge’s damage award would have been incurred regardless of whether Mr. Walker provided proper notice and that the trial judge had not accounted for money Consbec saved in not having to pay Mr. Walker’s salary during the notice period. After undertaking further analysis of Consbec’s losses during the notice period, the Court of Appeal determined that Consbec had not, in fact, sustained any measure of damages, and set aside the damage award in its entirety.

Conclusion

This case is a good reminder for BC employers regarding employee status, resignation and post-employment competition:

  1. A “manager” in name only will not suffice to establish heightened duties, including fiduciary duties, if the substance of the employee’s role does not support a heightened or fiduciary relationship;
  2. Although there is no statutory obligation in BC for employees to provide a minimum amount of notice of resignation, employees are nonetheless under a common law obligation to provide their employer sufficient notice to adjust to or mitigate their departure. For employees in key or more senior positions, the notice period will be longer;
  3. When an employee breaches the obligation to provide reasonable notice of resignation, an employer must prove the damages it suffered as a result of the failure to provide notice, not as a result of the employee’s resignation;
  4. Even if an employee is a fiduciary, reasonable notice of resignation and a fiduciary duty may not be sufficient to adequately protect your business, so restrictive covenants should be considered (with appropriate advice to ensure enforceability); and
  5. Restrictive covenants should be considered for any employees who could relatively easily compete with and potentially harm your business’ interests, whether or not the employee is a fiduciary or manager.

By: Ryley Mennie, Associate

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Employer Advisor, McCarthy Tétrault LLP

Employment and labour lawyers at McCarthy Tétrault LLP
McCarthy Tétrault through their Employer Advisor blogs offers their perspectives on the latest legal developments applicable to the workplace. It provides their insights on legislative and regulatory developments, as well as new case law, while providing practical tips for employers and their human resources professionals when managing the workforce. McCarthy Tétrault is a Canadian law firm that delivers integrated business law, litigation services, tax law, real property law, labour and employment law nationally and globally. Several of their blog posts will be republished with permission on First Reference Talks. Read more
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