An Alberta engineering firm has been awarded more than $112,000 in damages from a former worker who quit, immediately joined a competitor and stole the business of one of its clients.
The Alberta Court of King’s Bench called his actions a “flagrant” breach of the duty of good faith he owed to his employer.
Background
BM worked for Catch Engineering Partnership. He signed a written employment agreement on Feb. 21, 2019, and was assigned to provide engineering services to one of its clients — Canadian Natural Resources Limited (CNRL).
BM provided services to CNRL from February 2019 to Jan. 3, 2020.
Immediately following termination of his employment, BM went to work for Normatec, a company providing similar services to Catch. BM had arranged earlier with CNRL — while still at Catch employee — to continue performing his same duties. CNRL then terminated its agreement with Catch.
Catch sued, alleging BM violated the terms of his employment agreement by using confidential information for his own gain and that he solicited the business of CNRL in violation of the non-solicitation covenant he signed. Further, Catch alleged that BM breached his duties of good faith and fiduciary duties and that it suffered damages arising from the loss of its business with CNRL.
BM denied breaching his employment agreement or his duty of good faith. He took the position that he didn’t owe Catch any fiduciary duty and that any restrictive covenants were unenforceable. To top it all off, he said CNRL approached him and that Catch didn’t suffer any damages.
Ask to be a contractor, followed by resignation
In December 2019, BM approached Catch with a request to change his status from a salaried employee to a contractor. On Dec. 16, 2019, following some negotiations they agreed verbally to do so and pay BM a rate of $60 per hour.
Despite accepting this offer, BM resigned the following day by email — citing the “differences we had during negotiations” as the reason. His last day would be Jan. 3, 2020.
Just three minutes after sending that email, BM reached out to his supervisor at CNRL asking if he could come work for it as a contractor through a different agency. (Note that he was still very much a Catch employee at this point.)
By Dec. 19, BM had secured a position with Normatec, another technical services company. His first day was Jan. 6, 2020, and he was seconded to CNRL through Noramtec to do the exact same work he had done through Catch. CNRL then ended its engagement with catch for that role.
The court’s ruling: Non-solicitation convenant
The Court of King’s Bench of Alberta ruled the non-solicitation covenant in BM’s contract was enforceable.
“The non-solicit clause prohibits a Catch employee from contacting a client of Catch for the purpose of inviting, encouraging, or requesting any customer to transfer from Catch to the employee or the employee’s new employer, or to otherwise discontinue its patronage and business relationship with Catch,” it said. “The clause is clearly designed to prohibit Catch employees from asking the clients with whom they worked to leave Catch, and either hire them directly or through a company other than Catch.”
It also said there was a “clear and unequivocal invitation” to CNRL to discontinue its engagement with Catch and contract BM through another company. It ruled he had breached the covenant.
Confidentiality clause
It then turned its attention to whether or not BM breached the confidentiality clause. The court said the critical nature of the work BM did, and its time sensitive nature, was CNRL’s confidential information.
BM used that information for his own benefit in December 2019 to further his plan to solicit the business away from Catch.
In addition, he used the fact that CNRL had given Catch positive feedback about his performance to aid in soliciting work from CNRL, it said. The court was satisfied that breaches occurred and information was used by BM for an improper purpose.
‘Flagrant’ Breach of duty of good faith
Employees like BM, who are seconded to clients of their employers, are in what the court called a “unique” position. They are integrated into the client’s business and treated like employees.
“Employers like Catch are particularly vulnerable when their employees breach the duty of good faith to undermine the business relationship between their employer and the client,” it said.
“(BM’s) actions amounted to a flagrant breach of the duty of good faith owed to his employer.”
Fiduciary duties
The court said there was no evidence BM owed Catch a fiduciary duty. Therefore, there was no breach.
Damages from breach
The court said if BM had not directly solicited the business of CNRL away, and lied about his intentions, CNRL would have continued its contract with Catch.
“It could have taken steps to protect its relationship with CNRL and reassure them that they understood the importance of CNRL’s project and would immediately undertake to fill the role formerly held by (BM),” it said.
Quantifying the losses was not a “straightforward task,” it said.
It calculated the profit loss for Catch in 2020, attributable to BM, to be $49,920. For 2021 and 2022, it calculated the profit loss $37,440 and $24,960 respectively after reducing them. (See case for full calculation and data.)
It reduced the amounts because “the further away from the date of the breach… the greater effect other contingent factors may have on the losses suffered by Catch.” It declined to award damages beyond the end of 2022, calling it “too speculative given the passage of time.”
Total damages awarded to Catch from BM was $112,320 plus pre-judgment interest. It also awarded costs to Catch.
For more information, see Catch Engineering Partnership v Mai, 2023 ABKB 279 (CanLII)
