Employer Awarded $11.4 Million from Employees. It Seems the Tables Have Turned, Mr. Powers…

August 9, 2012 | Employment Law |

Employers often rightly bemoan the different and inequitable duties on employers and employees respectively when it comes to the requirement of each to provide notice to the other before terminating the employment relationship.  The law typically requires employers to give dramatically more notice to employees in advance of firing them than it requires employees to give in advance of their quitting.

The various provincial employment standards legislation typically contains a remarkably tepid section imposing a duty on employees to provide two weeks’ notice before quitting, which section invariably has no corresponding enforcement provision (in other words, if the
employee fails to comply, nothing happens).  In Ontario, the section was removed altogether recently, which is at least less hypocritical.

A recent case, however, shows that in the right circumstances, employees may be punished severely for failing to give reasonable notice to the employer before quitting.  In gasTOPS Ltd. v. Forsyth, four employees resigned from the company and started a competing business.  Each gave two weeks’ notice of their intention to quit.When they did so, the employer told two of them to leave immediately.  Those two started up a competing business and successfully solicited twelve other employees to leave gasTOPS and join their new company.

The Court found that the amount of notice the employees gave was wholly inadequate, that the employees knew it, and that their intention was actually to destroy their former
employer’s technology business.  They knew that their hasty and group departures would leave the employer incapable of fulfilling its existing contracts or pursuing an important business opportunity that it was developing with the U.S. Navy.

The Court found that the employees owed a fiduciary duty to their employer which they breached, especially in the manner in which they departed and in what they did after
departing.  Specifically, their fiduciary duty was breached by their leaving without giving adequate notice, knowing that other employees would follow them and that this would have devastating effects on their former employer.  They also used confidential information acquired from their former employer, actively solicited customers of the former employer and competed unfairly with gasTOPS.  The failure to give
reasonable notice prior to quitting was, the Court found, a breach of contract.  For all of these breaches of contract, fiduciary duty, and confidentiality, the Court awarded the
former employer over $11,400,000.

The Court stated:“failure of an employee to provide adequate notice will entitle the employer to an award of damages.  Generally, reasonable notice is meant to give the employer time to hire and train a replacement… in determining the time required to hire and train a new employee, one must look at the nature of the employee’s position and the area of work that the employer was competing in… how long would it
take the [former employer] to recruit, train, and familiarize new employees to [its] products and their clients?  How does the simultaneous departure of 75% of the [the employer’s] employees affect this timeframe?  These factors will contribute to what constitutes ‘reasonable’ notice.”  Under the circumstances of this case, the Court held the employees ought to have given the employer ten months’ advance notice before quitting.

The Court considered it significant that the employees were able to compete unfairly as a result of failing to give proper notice.  The employees argued at trial that their former employer waived its entitlement to a longer notice period by demanding that they leave its premises immediately when the employees had given two weeks’ notice.the Court rejected this argument.  The Court said that the notice given by all of the employees individually was insufficient and was therefore a breach of the employees’ obligations to give reasonable notice of termination of their employment.  gasTOPS attempted to persuade the employees to either withdraw their resignations or in the alternative provide more reasonable notice.the Court concluded, “gasTOPS was entitled to accept as it did the breach of the employment contract by [the employees] and ask them to immediately leave the premises.  It appears that gasTOPS probably paid [them] to the end of the notice period.”

For those of us working on the employer side, this is an excellent case as it shows that the law will protect employers’ reasonable expectations that they will not be left in the lurch
by an employee’s sudden departure.  It is a good idea for you, as an employer, to consider how much notice in advance you would reasonably require in order to transition smoothly for each of your staff positions.  At MBC, our standard starting assumption when preparing a Practice Protection Package™ for our Veterinarian clients is that an employee will need
to give four weeks’ notice before quitting.  The employer may waive that if they do not need it and in appropriate cases, a much longer notice period can be contractually imposed.

Bottom Line: An account of an employer who benefited greatly from a recent court ruling because employees did not give adequate notice of their job departure.