Employer entitled to 10 months’ notice: Court

Employees must pay $11.4 million for no notice of resignation and violation of fiduciary duties

Employers often find they are 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, a group of Ontario employees who quit and started a competing business found out they were responsible for a lot more notice of resignation because of their importance to their employer.

In GasTOPS Ltd. v. Forsyth, four employees resigned from their positions with GasTOPS, a supplier of control and condition assessment systems for industrial machinery based in Ottawa. Each employee provided two weeks’ notice of the decision to leave. When two of these employees provided the employer with their two weeks’ notice, the employer told them to leave the workplace immediately. Following their resignations, these two employees set up a competing business and shortly thereafter solicited 12 other GasTOPS employees, who subsequently resigned from their positions with 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, and most noteworthy, 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 Ontario Superior Court of Justice not only found the employees had breached their fiduciary duties, but also the employees had not provided the employer with reasonable notice of their intention to resign from their employment.

Notice must give employer time to hire and train replacement

“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.

“(The employer) 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,” said the court.

Finally, the court found that the employees should have provided the employer with ten months’ notice of their intention to resign.

“If (the employees) had given 10 months' notice, which would have been reasonable, the (employees) would have continued to owe to (GasTOPS) 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,” said the court. “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).”

For the employees’ breaches of fiduciary duty and lack of reasonable notice for resignation, the court awarded GasTOPS $11.4 million in damages.

Employer and employee both have notice obligation

Although providing reasonable notice is commonly associated with the duties of an employer, GasTOPS clearly shows there are instances when providing reasonable notice is also the employee’s responsibility. For this reason, the decision rendered by the Ontario Superior Court of Justice in GasTOPS should not be taken lightly by either employees or employers. Both parties to an employment relationship should be aware of this decision and its potential application in the employment context. More specifically, it should not be assumed by either employees or employers that 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 in which the employer would have difficulty finding a relatively quick and reasonable replacement. If so, then it may be the case that a more reasonable amount of notice of resignation is required. See GasTOPS Ltd. v. Forsyth, 2009 CarswellOnt 5773 (Ont. S.C.J.).

Ronald S. 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 Sarah Kauder for their assistance in preparation of this article.

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