Alberta Court of Appeal, 2010
The respondent Soost was summarily dismissed from his position as a financial advisor by the appellant Merrill Lynch Canada Inc., who believed it had several grounds for dismissal, including failure to comply with regulatory authorities. The trial judge held that most of these grounds existed, but that they were not so severe to justify dismissal. The respondent found a new job after three weeks; however many of his former clients did not follow him to this lesser employer, resulting in a substantially lower income. The trial judge awarded a year’s pay in lieu of notice ($600,000) and $1.6 million in damages for damage to reputation and book of business or goodwill.
The issue on appeal was whether the trial judge can award significant damages for the fact of an employee’s dismissal, the stigma that dismissal brings, or for the employer later competing with the ex-employee for the clients before the ex-employee has obtained a new job.
The Court of Appeal held that the second damage award of $1.6 million had no basis in law and attempted to compensate for a detriment arising as a product of dismissal, rather than for an absence of reasonable notice.
The Court held that damages due to dismissal with neither reasonable notice nor pay in lieu cannot exceed what pay in lieu would have been. The only exception to this is “Honda damages”, which the Supreme Court of Canada granted in Keays v Honda Can. for methods of dismissal which were unduly unfair or insensitive. This level of behaviour cannot be due to sloppiness, but rather must be malicious or show blatant disregard for the company. The Court of Appeal held that the good faith of the company and its honest belief of cause were well-founded, and therefore Honda damages cannot apply.
The Court of Appeal also held that the compensatory damages stem from the right to reasonable notice or pay in lieu, and not from the damages for loss of a job. Although the plaintiff lost significant income with the loss of his clients upon dismissal, the dismissal itself was not a wrong, and therefore there can be no compensation for it.
The valuation of the “book of business” was based on a calculation of annual commissions. However the annual fee (and therefore the $600,000 for pay in lieu) is calculated based on the valuable fees from trades the plaintiff induced his customers to make, so the compensation of a year’s income and compensation for the book amounted to double counting.
Lastly, the Court of Appeal held that after an employer and employee part ways they are free at once to compete with each other for clients absent any confidential information or restrictive covenant, and that unfair competition therefore could not in law amount to a separate mode of dismissal and head of damages under Honda damages.