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PAGE 4 NEWS June 7, 2010 • Law Times Ruling eases lawyers' departure from firms BY JULIUS MELNITZER For Law Times t may not quite be open sea- son on law fi rm clients, but the Ontario Superior Court's recent judgment in Aquafor v. I Whyte, Dainty, and Calder pro- vides a little more wiggle room for lawyers planning to go elsewhere while hoping some of their cur- rent business will follow them. "Aquafor suggests that profes- sionals, including lawyers, are entitled to covertly plan their de- parture and take active steps to set up new shops as long as they do not do so on working time, do not breach their fi duciary duties or duty of loyalty, and do not misuse confi dential infor- Ontario Labour & Employment Legislation 2010 - 2011 This edition includes: • • • • • • • • • • • plus important regulations, rules and information bulletins New in this edition: New Act and Regulation • , and O. Reg. 47/10, Under the • new Part XVIII.1, "Temporary Help Agencies" • new s. 49.2, "Organ Donor Leave" • 2 new regulations: O. Reg. 502/06, , and O. Reg. 398/09, ORDER your copy today Perfectbound • 1,242 pp. • June 2010 On subscription $83 • P/C 0813140000 One time purchase $93 • P/C 0813010000 Multiple copy discounts available ISSN 1195-0196 Under the • Under the • new Part III.0.1, "Violence and Harassment" • new regulation O. Reg. 490/09, amended to March 2010 mation," says Jeff Goodman of Heenan Blaikie LLP. Stuart Rudner of Miller Th omson LLP says the decision clarifi es "an often confusing and misunderstood" area of the law. "In the past, there has been whether uncertainty profes- sionals are fi duciaries and what steps they can take both before and after they leave their cur- rent employment to start their own fi rm or help a new fi rm to which they are moving." Th e case arose when engineers Robert Whyte and Bill Dainty decided to leave Aquafor Beech Ltd., a small Toronto-based en- gineering fi rm. Whyte was a co- founder and director of the fi rm, and both had worked there for more than a decade as senior en- gineers whose responsibility for its mining and land-development clients accounted for 25 per cent of its revenues. In the summer of 2003, Whyte and Dainty decided to start their own fi rm. Th ey advised Dwayne Hay, a senior land-development designer and co-worker, and he asked to join them. In September 2003, they pre- LT0607 For a 30-day, no-risk evaluation call: 1.800.565.6967 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. Ontario Labour & Employment (LT 1-4x3).indd 1 6/2/10 11:31:00 AM Subscribe to Law Times Why pay extra for your legal news? Cutting-edge legal affairs, news and commentary for just 44¢ a day! Make the time for Law Times and keep up with all the developments in Ontario's legal scene. Subscribe today and receive: • Unlimited access to the Law Times digital editions and to our digital edition archives...FREE • Canadian Legal Newswire, a weekly e-newsletter from the editors of Law Times and Canadian Lawyer...FREE pared for the move by leasing space, working on leasehold im- provement during non-business hours, and preparing a business plan. Whyte, Dainty, and Hay all resigned towards the end of Sep- tember, giving four to fi ve weeks' notice of their departure. Th ey worked with David Maunder, Aquafor's president, to ensure a smooth transition, and Whyte continued to assist with that fol- lowing his departure. Following the resignation, q Send me 1 year of Law Times for only $159.00 (Total with GST: $166.95) Name: __________________________________________________________________________ Company: _______________________________________________________________________ Address: ________________________________________________________________________ City: ____________________________ Prov: _______________ Postal Code: __________________ Tel: ( ) _______________________ Fax: ( ) ______________________ Email: ____________________________________________________________________________ q Payment enclosed q Charge my: q Visa q Mastercard q American Express Card #: __________________________________ Expiry Date: ___ / ___ (mm/yy) Signature (required): ________________________________________________ Date: ________________ 240 Edward St. Aurora, ON. L4G 3S9 Tel: (905) 727-0077 Fax: (905) 841-4357 Mail or fax this form to Law Times www.lawtimesnews.com LT Sub ad - 1-4-3X.indd 1 5/26/10 11:09:06 AM the three men incorporated their company, Calder Engineering Ltd., registered a domain name, applied for authorization from the regulatory body, and adver- tised for offi ce help. Whyte also told three of his clients he was leaving. Dainty told two, one on his own initiative and one at Maunder's request. How- ever, Whyte and Dainty left their computers at Aquafor and didn't take any fi les away. In November, a junior engi- neer who had worked at Aquafor joined Calder. Later that year, Calder sent out an announce- ment letter to a list obtained from public sources. Th ree of the recip- ients had been clients of Aquafor. Aquafor sued in September 2005, alleging Whyte and Dainty were fi duciaries who had breached their duties by secretly planning to leave and set up a competitive fi rm; failing to give adequate no- tice of their departure; soliciting clients and employees; appropri- ating corporate opportunities; and using confi dential informa- tion for Calder's benefi t. Aquafor sought disgorgement of profi ts ranging from $2.3 to $3.2 million. But Justice Barbara Conway dismissed the claim. Conway ruled that although the individual defendants were fi - duciaries because they had played a signifi cant role with Aquafor, had substantial autonomy, were involved in corporate and admin- istrative matters, and were the "face of the fi rm," they were en- titled to secretly plan their depar- ture while still employed by it. "Th e court concluded that it would be unreasonable to expect them to wait until after their de- parture to do so and that such planning did not amount to competition," Goodman says. Conway also ruled there was nothing inherently wrong with fi duciaries advising clients of their departure absent evidence that they had attempted to persuade them to move their business. "Th is is particularly so where the professionals are working closely with the clients at the time of departure," Rudner notes. Th e decision also means that widely distributed letters of in- troduction or announcement no- tices sent after departure will not, generally speaking, constitute in- appropriate solicitations. For his part, Goodman main- tains the court's fi nding that Whyte and Dainty were entitled to compete with Aquafor im- mediately after their departure as long as they did so "fairly" with- out soliciting clients and misus- ing confi dential information is the most remarkable aspect of the judgment. "It's a surprising conclusion given the court's fi ndings that the defendants were the face of Aqua- for," he says. "It suggests that even a fi duciary who is the face of a business can compete even if his or her role meant that clients would naturally follow them after their departure." Aggravating the situation for former employers is Conway's rul- ing that four to fi ve weeks' notice was reasonable, thereby rejecting Aquafor's contention that 12 to 18 months was appropriate. "It is surprising that the court found such a short notice period to be reasonable given the defendants' very senior and critical roles in the business, their length of service, and the circumstances of their depar- ture," Goodman says. Finally, Goodman believes Aquafor confl icts with the recent Ontario Superior Court decision in Bonazza v. Forensic Investiga- tions Canada Inc. In that case, the court ruled a non-fi duciary was prohibited from competing with his former employer even though a non-competition agreement he had signed was unenforceable. "Aquafor gives rise to the ques- tion of whether there is a class of fi duciary employees so integral to the organization that the fi ducia- ry duty itself imposes an obliga- tion not to compete for a period after departure," he says. But Rudner says the case doesn't make new law. "Aquafor confi rms that even the duties of a fi duciary to a former employer are not so oppressive that they would prevent reasonable and ap- propriate eff orts to pursue one's own livelihood. Th e judgment establishes that fi duciaries are not to solicit their former employer's client but that they are not pre- cluded from serving those clients if the clients choose, of their own volition, to follow them." 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