Workers violated fiduciary duties, failed to give reasonable notice
Employers are often on the hook for a significant amount of reasonable notice when dismissing an employee, while often employees only need to provide two weeks’ notice if they are quitting.
However, employees at an Ontario company who quit and started a competing business found they were responsible for a lot more notice of resignation as part of $11.4 million awarded to their former employer by the Ontario Superior Court of Justice.
In GasTOPS Ltd. v. Forsyth, four employees resigned from GasTOPS, an Ottawa-based supplier of control and condition assessment systems for industrial machinery. Each employee provided two weeks’ notice but two of them were told to leave the workplace immediately.
These two employees set up a competing business and solicited 12 other GasTOPS employees, who subsequently resigned from GasTOPS to join the competing company.
GasTOPS commenced an action against the four employees, claiming they were in breach of their fiduciary duties for misappropriation of confidential information, trade secrets and corporate opportunities. Additionally, GasTOPS claimed the four employees failed to give reasonable notice of their intention to resign.
The employees argued GasTOPS had waived its entitlement to a longer notice period when it demanded the resigning employees immediately vacate the workplace. However, the workers had not only breached their fiduciary duties but not provided reasonable notice of their intention to resign from their employment, found the court.
“Failure of an employee to provide adequate notice will entitle the employer to an award of damages. Generally, reasonable notice is meant to give the employer time to hire and train a replacement… In determining the time required to hire and train a new employee, one must look at the nature of the employee’s position and the area of work that the employer was competing in,” said the court.
“(GasTOPS) attempted to persuade the employees to either withdraw their letters of resignation or, in the alternative, provide more reasonable notice. In my view, (the employer) was entitled to accept as it did the breach of the employment contract by (the employees) and ask them to immediately leave the premises. It appears (GasTOPS) probably paid (the employees) to the end of the notice period.”
Finally, the employees should have provided the employer with 10 months’ notice of their intention to resign, found the court.
“(The employees) gave insufficient notice of their resignation in order to establish their own company, which would compete directly with (GasTOPS) as soon as possible. If they had given 10 months’ notice, which would have been reasonable, the (employees) would have continued to owe to (the employer) a duty of loyalty and good faith which would have prevented them from establishing their own company and competing with (GasTOPS) in the area of aviation maintenance software.
“I have no doubt that the (employees) resigned when they did in order to have an opportunity to compete for the GE and the U.S. Navy opportunities that were almost at the point of fruition for (GasTOPS),” said the court.
For the employees’ breaches of fiduciary duty and lack of reasonable notice for resignation, the court awarded the employer damages in the amount of $11.4 million.
Both parties to an employment relationship should be aware of this decision and its potential application in the employment context. More specifically, neither employees nor employers should assume the usually acceptable two weeks’ notice of resignation will be sufficient in every case. It must be determined whether the position from which the employee is resigning is one for which the employer would have difficulty finding a relatively quick and reasonable replacement. If so, a more reasonable amount of notice of resignation may be required.
For more information see:
•GasTOPS Ltd. v. Forsyth, 2009 CarswellOnt 5773 (Ont. S.C.J.).
Ronald Minken is a senior lawyer and mediator at Minken Employment Lawyers, an employment law boutique in Markham, Ont. He can be reached at (905) 477-7011 or www.EmploymentLawIssues.ca. He gratefully acknowledges Kyle Burgis and Sara Kauder for their assistance in preparation of this article.
