4 employees must pay almost $20 million to former employer

Ontario Court of Appeal upholds damages after employees quit on short notice and started competing business
|employmentlawtoday.com|Last Updated: 04/26/2012

The Ontario Court of Appeal has upheld a decision ordering four employees to pay their former employer almost $20 million in damages for their failure to provide 10 months’ notice of resignation and recruiting other employees to their competing business.

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 solicited 12 of their former co-workers, who subsequently resigned from their positions with GasTOPS to join the competing company.

GasTOPS sued 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, the Employer claimed the four employees failed to give reasonable notice of their intention to resign.

The Ontario Superior Court of Justice found the employees should have given GasTOPS adequate notice to hire and train replacements, which the courts felt should have been 10 months. In addition, the court found the employees had a fiduciary duty of loyalty and good faith to not compete with GasTOPs during that period or lure away other employees. It was likely, said the court, that the employees quit when they did so they could compete for opportunities GasTOP had that were “almost to fruition.”

The Ontario Court of Appeal dismissed the former employees’ appeal that two of them should not have a fiduciary duty and the damage award covered too much. The total award for damages the former employees were ordered to pay GasTOPs — for breach of fiduciary duty, reasonable notice, trial costs and pre-judgment interest — was $19,599,359.24.

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