The Supreme Court of Canada has partially overturned an appeals court decision in a broker raiding case, reinstating a large award against a brokerage branch manager that orchestrated a wholesale defection from one firm to another.

The case involved a group of Cranbrook, B.C.-based brokers that left RBC Dominion Securities Inc. for Merrill Lynch Canada Inc., back in 2000. RBC sued Merrill and the brokers who left, claiming compensatory, punitive and exemplary damages.

The Supreme Court of British Columbia held that: the former employees breached the implied terms of their employment contracts requiring reasonable notice and prohibiting unfair competition with RBC; and, the branch manager who coordinated the move had breached his contractual duty by coordinating the departure and by failing to inform RBC management.

The trial judge awarded damages of $1,483,239 against the branch manager for the loss of profits RBC suffered as a result of his failure to perform his duties in good faith, specifically, his orchestration of the departure of virtually all RBC’s investment advisors. The trial judge also awarded a total of $40,000 in damages against the investment advisors for failure to give reasonable notice of termination of employment, and a total of $225,000 against the investment advisors for unfair competition. It also awarded $270,000 in punitive damages.

The majority of the Court of Appeal varied some of these damages, upholding the punitive damages and the $40,000 award for failure to give notice, but tossing out the other large awards.

At issue was whether the Court of Appeal properly overturned the award of damages against the former RBC employees and Merrill Lynch and its manager for losses caused over a five‑year period and whether it properly set aside the award against the branch manager on the finding of breach of a contractual duty of good faith, the Supreme Court said. Today, it ruled that it would allow the appeal in part. “The order of the trial judge is reinstated, with the exception of the unfair competition awards against the investment advisors arising out of conduct during the two and a half week notice period,” the Supreme Court ruled in a majority opinion with Justice Abella dissenting.

“An implied term of that contract, as he admitted at trial, was to retain the employees of RBC who were under his supervision. In organizing their mass exit, he breached that duty of good faith,” the court noted. “The damages for that breach are the amount of loss it caused to RBC. To calculate that loss, the trial judge chose a position intermediate between those advanced by the plaintiff and the defendant. After hearing extensive expert evidence from both sides, she measured the loss on the basis of five years, discounted for various contingencies. That was reasonable and supported by the evidence.”

In the dissent, Abella disagreed with the conclusion that the branch manager breached an implied contractual duty of good faith. “Moreover, in my view the trial judge’s finding that RBC’s compensable period of loss was five years is unjustified by any principle of damages for breach of contract, let alone for this particular employment contract.”

“In this culture, a damage award based on five years’ lost profits is unreasonable,” Abella said. “In such a fiercely competitive industry, no non-fiduciary employee without a non-competition clause would reasonably expect to be held liable for the employer’s lost profits arising from his or her departure or the influence it may have had on fellow employees, let alone for so lengthy a period of time.”