Disgruntled exec joins competitor

After demotion, executive resigned and accepted another job while still negotiating severance

This instalment of You Make the Call features an executive who accepted a new job with a competitor before he was officially terminated.

Dewey McMahon, 61, worked for automotive glass supplier TCG International for 28 years. He was promoted to senior vice-president of corporate distribution, based in Port Coquitlam, B.C., in 2000. With this promotion, McMahon signed a non-competition agreement required of all senior managers at TCG, which prohibited him from working with any competitors for two years following a termination.

In January 2002, McMahon was replaced and reassigned to another position reporting to his replacement. A year later, he was reassigned again to a job with reduced responsibilities. Though it was at the same salary, McMahon was concerned it was a demotion.

In March 2003, McMahon’s position was eliminated and he was appointed vice-president of sales with a significantly reduced salary. He was unhappy and by July 2003 TCG was displeased with his job performance. It gave him a letter dated July 22, 2003, warning him about the job he was doing. It was the first disciplinary letter he’d received while working for TCG.

McMahon said he couldn’t carry on any longer. He discussed possible severance arrangements with HR and he went on stress leave on July 31, 2003, until things could be resolved.

McMahon had been discussing his situation with the head of Independent Glass Distributors (IGD), one of TCG’s biggest customers. IGD had been planning to expand and launch its own distribution business, pulling its business from TCG. In early August 2003, McMahon was offered a job as a general manager for IGD in Edmonton with an open-ended start date, which he accepted. A few days later, on Aug. 25, 2003, TCG sent a termination letter to McMahon, accusing him of helping a competitor. It also claimed he breached his duty of fidelity when he didn’t tell them of IGD’s plans for expansion while still employed with TCG.

McMahon sued for wrongful dismissal, claiming he didn’t know anything about IGD’s plans for expansion and he didn’t breach his fidelity or aid a competitor while still a TCG employee.
Did McMahon damage the employment relationship by breaching his duty of fidelity while still employed by TCG?
Was McMahon entitled to reasonable notice?

If you said McMahon was entitled to reasonable notice, you’re right. The court considered McMahon to have resigned on July 24, 2003, when he told TCG he couldn’t carry on any longer. However, it wasn’t a repudiation of the employment contract.

“McMahon’s intention was to bring (the employment contract) to an end at an undetermined future date,” the court said. “After July 31, and until the parties agreed on severance arrangements and a termination date, Mr. McMahon was on paid leave.” The court also found McMahon’s acceptance of a job with IGD didn’t repudiate his employment with TCG as it had an open-ended start date which had yet to be determined.

“(Accepting the new job) was not an immediate repudiation, as his intention was to commence the new employment at a then undetermined future date,” the court said. The court found McMahon wasn’t told specific details about IGD’s expansion and he didn’t “actively assist” it in setting up a competing business.

“TCG was going to lose the (IGD) account no matter what Mr. McMahon could have done,” the court said.

The court ruled McMahon’s conduct didn’t case a breakdown in the employment relationship as “it had already broken down” and the information he withheld wouldn’t have prevented TCG from losing IGD’s account. Because of his length of service and seniority, the court awarded 20 months’ notice as severance. See McMahon v. TCG International Inc., 2007 CarswellBC 1600 (B.C. S.C.).

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