In a recent decision, the Ontario Superior Court affirmed that departing employees can owe a duty of good faith and a fiduciary duty to their former employer, and a violation of those duties can give rise to a significant damages award. This decision marks an important reminder to employees regarding their obligations when leaving their employment.
The Prim8 Group Inc. is a communications agency who hired Richard Tisi, initially on a contract basis and then as a one-third shareholder, director and officer of the agency, to develop websites for Prim8 clients. Tisi, together with an employee, Ian MacArthur, developed customized management software for Prim8.
A dispute arose between Tisi and Prim8, and Tisi left his employment. When he left, he took his computer equipment, including access to the customized management software. Shortly thereafter, MacArthur also left Prim 8, and he and Tisi began working on a competing business. Prim8 sued for inducement to breach contract, as well as conversion and breach of fiduciary duty.
Judgment of the Ontario Superior Court
In The Prim8 Group Inc. v. Tisi and MacArthur 2016 ONSC 5662, Prim8 was successful in its action against Tisi and MacArthur. The Court found that Prim8 had established its claims for breach of duty, conversion and inducing breach of contract, and awarded approximately $100,000 in damages, together with costs, against the Defendants.
The Court found that “employees owe their employers a general duty of good faith and loyalty (or fidelity) as an implied term of their employment contract.” The Court further held that, as a senior officers of the corporation, Tisi owed a fiduciary duty of “loyalty, good faith and avoidance of conflict of duty and self-interest.” The Court held that Tisi had breached his fiduciary duty in taking the computer equipment and customized management software assets of Prim8, and converting them to his own use. The Court also found that Tisi actively impeded Prim8’s ability to make changes to its client websites. The Court assessed damages for the replacement of the assets taken by Tisi, together with damages for lost billings to Prim8’s former clients.
Both Tisi and MacArthur were also held liable for a failure to give proper notice of their departure. Tisi was also found to have induced MacArthur to breach his contract with Prim8.
Tisi and MacArthur found themselves in a position that no employee wants or expects to be in—having moved on to new employment, they were taken to court by their former employer because of breaches of their obligations upon departure. This case stands as an important reminder to employees, particularly senior employees, that their duties to their employer do not necessarily end at the moment they tender their resignation. All employees should seek legal advice concerning notice and fiduciary obligations to their former employers, if they are planning to leave their employment.
[This article is for informational purposes only and does not constitute legal advice, which cannot be given without consideration of your individual circumstances.]