Risks of an Inadequately-Drafted Employment Agreement

In a recent case of the Supreme Court of British Columbia, an associate investment advisor was ordered to return confidential client data to his former employer, RBC Dominion Securities (“RBCDS”), but the order did not extend to primary clients with whom the employee had a personal relationship. In RBC Dominion Securities Inc. v. Macdonald, [2013] B.C.J. No. 1179, a former employee, Lance Macdonald, worked for nine years as an assistant advisor to Mr. Ingram, a senior investment advisor at RBCDS. Over time, he became the primary contact for many of Ingram’s clients.

Macdonald resigned from RBCDS and found new employment with one of its competitors, National Bank Financial Ltd. Immediately after commencing his new employment, Macdonald began soliciting RBCDS’s clients. The employment contract executed by the Macdonald and RBCDS did not include a non-solicitation or non-competition clause. The contract consisted of a letter signed by Macdonald, wherein he agreed to certain terms and conditions of employment, including a prohibition against future disclosure or use of any confidential information obtained during the course of employment.
 
RBCDS sought an interlocutory injunction prohibiting the defendants, Macdonald and National Bank Financial Ltd., from engaging in targeted solicitation of RBCDS’s clients. The defendants argued that the injunction sought would effectively result in the imposition of a non-competition and non-solicitation clause, despite their absence from the contract. It would also effectively prevent Macdonald from carrying on his work as an investment advisor in Kelowna, BC.

RBCDS was successful in obtaining an injunction; however, the court did not extend the order to include clients to whom Macdonald provided services while he was employed by RBCDS (“Primary Contact Clients”). The court found that Primary Contact Clients may have developed a personal relationship of trust and confidence with Macdonald, and thus, have an interest in knowing about his new employment so that they may choose to follow him. If a breach of contract were found in relation to the Primary Contact Clients, damages would be an adequate remedy, which weighed against granting the injunction. The court also considered the unique relationship between client and investment advisor, and the client’s interest in continuing to maintain investment income.

On the other hand, non- Primary Contact Clients have no relationship of trust and confidence with Macdonald and no specific interest in learning of his new employment. The injunction was extended to these clients in order to protect their privacy, including their status as potential investors and their private contact particulars. RBCDS could have suffered undue reputational harm if its client information could be misused by a competitor without consequence. Furthermore, RBCDS has a proprietary interest in the Client List and its other client information.

The existence of an employment agreement with a properly drafted non-competition and non-solicitation clause could have protected RBCDS against many of the issues arising in this case. A non-competition clause would prevent Macdonald from working as an investment advisor with a competitor for a reasonable period of time and within a defined geographical area. A non-solicitation clause would delay Macdonald’s opportunity to solicit RBCDS’s clients for a period of time, allowing RBCDS to find a replacement for Macdonald and to re-establish relationships with its clients. Finally, it may have discouraged National Bank Financial Ltd. from hiring Macdonald in the first place, due to the potential to entwine them in an expensive and time-consuming litigation process.