It was once assumed that senior professionals planning to leave their employers for competitors had to keep their mouths shut when talking to clients. But an Ontario ruling in a court battle between two civil engineers and their Toronto-area firm has some saying those rules are being rewritten.
According to court documents in the civil case, engineer Robert Whyte says he felt like a "pawn" despite his senior status at his company, Aquafor Beech Ltd., a small engineering firm that worked on projects including dredging ponds and measuring storm-water flows.
Mr. Whyte's lawyers say in court documents that company president David Maunder gave him "no meaningful say" in the company's direction, even though Mr. Whyte was a director. High turnover meant the company had a "revolving door," another ex-employee testified, and morale was low.
Mr. Whyte and his colleague, Bill Dainty, had been talking about a way to parachute out of Aquafor for two months, going so far as to rent office space and hire a secretary.
After overhearing what Mr. Whyte described in court documents as a "nasty conversation" in September, 2003, between Mr. Maunder and a long-standing client about a disputed bill, Mr. Whyte resolved to quit.
After the pair left, several of Aquafor's clients followed them to their new company, Calder Engineering Ltd.
Two years later, in 2005, Aquafor sued, demanding up to $3.2-million in damages and lost profit. The company alleged the pair wrongly solicited Aquafor's clients, took confidential information, and even told Aquafor clients not to bother paying their bills, all while "secretly planning" to leave. The two men denied the allegations.
In a May 4, 2010 decision that observers say clarifies the murky rules for professionals - engineers, lawyers, accountants and others - governing what they can tell clients before they leave their employers, an Ontario Superior Court judge sided with Mr. Whyte and Mr. Dainty.
Their lawyer, Sarit Batner, says the ruling reverses the accepted legal wisdom that essentially barred professionals from telling clients they were leaving before heading out the door. (Among the professionals paying close attention to this ruling are lawyers, who are much more mobile than they used to be.)
Professionals are still forbidden from stealing their soon-to-be-former employers' clients, but they are free to inform the clients or customers that they are planning to leave, she said.
"You can't say, 'I want you to come with me, please come with me, you should come with me, they can't do your work well here.' But you can certainly say 'I'm leaving and you can come with me or stay, or do whatever you want to do.' And that's news."
The ruling also makes clearer the boundaries of the fiduciary duties owed to the company by senior managers, she said. Fiduciaries, or those who are considered key decision-making employees, are bound by more stringent rules when they quit than run-of-the-mill workers. But in this case, the judge ruled that even fiduciaries do not have to tell their employers they are thinking of quitting, nor are they forbidden from planning to set up businesses meant to compete with their employers, provided no actual competition takes place until after they have left.
"Surely you can secretly plan your departure," said Ms. Batner, a partner with McCarthy Tétrault in Toronto. "What are headhunting firms? Who would leave as a professional without secretly planning? I mean it sounds bad when you call it 'secretly planning' but really what you are doing is getting all your ducks in order."
Madam Justice Barbara Conway agreed. "Mere planning is not a breach of fiduciary duty," she writes in her ruling. "The defendants were entitled to take the preliminary steps necessary to set up their business. It would be unrealistic to expect them to wait until after their departure to do so."
Mr. Whyte and Mr. Dainty declined to speak with The Globe and Mail, because the 4½-year-long battle is still before the courts. The judge must contemplate awarding potentially hundreds of thousands of dollars in legal costs to her clients, Ms. Batner said.
Toronto lawyer Nina Perfetto, who acted for Aquafor, said her client is considering an appeal.
Ms. Perfetto, a partner with Folger Rubinoff LLP, agreed that the decision appeared to break with past rulings. But she said she doubted it is significant: "I'm not sure why anybody would be interested in this little case."
Ms. Batner, who has worked on several similar cases - sometimes on the side of the former employer - said the area remains a minefield of potential litigation for senior professionals or managers who are considering a similar move.
"You can almost count on getting sued if you are going to leave and set up a competing shop … ," Ms. Batner said. "If you leave, and set up a competing company, eyebrows immediately raise, especially if you're successful."
For example, in 2008, the Supreme Court of Canada awarded RBC Dominion Securities Inc. $2-million in damages in a case against a group of investment bankers in Cranbrook, B.C., that defected en masse to Merrill Lynch and took client records with them.
Toronto employment lawyer Janice Rubin said the Aquafor decision is a important clarification of the duties that professionals and fiduciaries owe their employers.
Ms. Rubin, managing partner at Rubin Thomlinson LLP in Toronto, said it also shows the benefit of seeking legal advice before employees jump ship. It was clear in this case, she said, that the departing engineers were very careful to operate by the book and had received good legal advice in advance.
This is often not the case in similar lawsuits. Employers usually win cases when the departing employees have made questionable moves, such as taking confidential information, Ms. Rubin said. "Often when you look at the cases where the former employer succeeds … on the retelling of the story, the former employee looks sneaky. Or the employee looks like, as my late grandmother used to say, a nogoodnik."