Breach of duty of good faith when manager lured staff to another firm

Generally, unless an employee signs a non-competition agreement with their employer, they are free to leave their job and begin competing directly against this employer. However, every employee owes some “duty of good faith” to their current employer. The scope of this duty depends upon the role of the employee within the organisation. For employees with critical responsibilities within a company, this duty can even be elevated to a fiduciary duty.

A recent Supreme Court case discusses the duty of good faith in the context of an employee who left his employment for a competitor. This case involved a branch manager at RBC securities.  He left his job at RBC taking, not only his clients, but also most of RBC’s investment advisors at the branch to a competing investment firm, Merrill Lynch. Interestingly, the manager had never signed a non-competition agreement with RBC and neither had any of the other advisors.

One would have thought the lack of a non-competition agreement would have settled the issue in favour of the manager. However, the court felt that the manager still owed RBC a duty of good faith which included making sure that his fellow investment advisors stayed with RBC. He was found liable for 1.5 million dollars in damages for lost profits to RBC over a 5 year period.

Even without a non-competition agreement, there are limits to what an employee can do in the name of free competition and career opportunity.