Professionals allowed to tell clients they’re leaving: Court

Planning competing business on own time and telling clients of plans doesn’t breach fiduciary duty

Employees in senior positions who leave a company to set up a competing business and take some clients with them are not necessarily breaching their fiduciary duty, the Ontario Superior Court of Justice has ruled.

Robert Whyte and Bill Dainty were civil engineers who began working for Aquafor Beech in the early 1990s. By 2003, Whyte had become a director and Dainty held a similar senior position. However, they felt they had little input in important business decisions and morale in the workplace was poor.

The two men decided to form their own engineering firm and began planning its setup and a way to leave Aquafor. By the time they quit their jobs at Aquafor, they had a name for their new venture, Calder Engineering, offices and a secretary. Before they left Aquafor, they informed their clients they would be leaving and several followed them to Calder.

Aquafor sued Whyte and Dainty for breaching their fiduciary duty to the company. It accused them of soliciting its clients, taking confidential information and hurting its business while they “secretly” planning to leave. It also said the engineers didn’t give it enough notice of resignation, considering their senior positions.

The court found Whyte and Dainty were fiduciary employees by nature of their positions, but they didn’t breach their fiduciary duties. The more than three weeks notice they gave the company was sufficient, said the court, and they were entitled to take preliminary steps to set up their new venture before they left Aquafor as they had no non-compete clauses in their employment contracts. The planning was done outside of work hours and no confidential information or company resources were used, found the court.

The court also went against the commonly held belief that professionals can’t tell clients about their leaving a company to go to a competitor. While they still couldn’t actively solicit or steal away their employer’s clients, the court said Whyte and Dainty only informed clients they were leaving. In the context of close professional relationships and specialized skills in the engineering industry, the court found this was a reasonable practice and it wasn’t surprising several clients left Aquafor to stay with the two men.

“Mere planning is not a breach of fiduciary duty,” said the court. “(Whyte and Dainty) were entitled to take the preliminary steps necessary to set up their business. It would be unrealistic to do so.”

For more information see:

Aquafor Beech Ltd. v. Whyte, 2010 CarswellOnt 3205 (Ont. S.C.J. [Commercial List]).

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