Important employment ruling in the securities industry

12 July 2018

By Sébastien C. Caron, Marie-Noël Rochon et Philippe Ross

The Court of Appeal for Ontario condemns two investment advisors for “courtesy calls” made to clients after joining a competitor. 

On May 1st, 2018, the Court of Appeal for Ontario rendered an important decision on the scope of non-solicitation terms used in the employment contract of two investment advisors. The ruling in MD Physician Services inc. v. Wisniewski, 2017 ONSC 2772 (confirmed on appeal, MD Physician Services inc. v. Wisniewski, 2018 ONCA 440) analyzes the legal implications of “courtesy calls” made by investment advisors to notify clients of their new employment while still bound by a non-solicitation clause.

The appellants, Joy Sleeth and Duane Wisniewski, worked as investment advisors at MD Physician Services Inc. (“MD”) before joining a competitor firm, RBC Dominion Securities Inc. (“RBC”). Upon their arrival, Sleeth and Wisniewski wrote down lists, working from their own recollection, of who their former clients were, and began phoning them, knowing that they were both bound by a non-solicitation clause.

This practice was common in the industry and was generally tolerated, as long as it was not combined with other breaches by the advisor towards his previous employer, such as breach of the duty of loyalty, misappropriation of confidential information or any other form of unfair competition.

 MD alleged that the calls were a clear breach of the non-solicitation clause, whereas Sleeth and Wisniewski pleaded that they were only “courtesy calls”. The advisors also alleged that “the agreement was ambiguous in regard to the term “solicit”, the geographic scope, the applicability to prospective clients and the temporal length of the restriction.” As a result, the non-solicitation clause should not be enforced against them.

The trial judge dismissed the advisors’ arguments and the decision was confirmed on appeal. The judges ruled that the calls to former clients, although made in the guise of simply providing clients with the advisors’ new place of employment, was meant to be, and became in substance, solicitation.

To reach that conclusion, the judges considered the strategy used by the advisors and approved by RBC. The calls were made in two steps: the advisors would first advise the clients that they had moved to RBC. Then, they would pause and if the clients asked questions, the advisors would further inform the clients about their new employer, explain the services offered and the benefits for the clients to move their account to RBC.

The new employer, RBC, was also condemned jointly with the appellants for its role in instructing the advisors to contact their former MD clients and suggesting how to proceed with the “courtesy calls”.

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