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December 2008 - Newsletter No. 21
In this Issue . . .
- QUASI-FIDUCIARY DUTIES - Terminated Employees Duty of Good Faith
- CLIENT IDENTIFICATION RULES - Lawyers are now required to obtain, verify, and retain client identity documentation
QUASI-FIDUCIARY DUTIES
Terminated Employees Duty of Good Faith
In an October, 2008 decision, the Supreme Court of Canada held that employees who are not part of the senior management and therefore have no fiduciary duties, may nevertheless have a quasi-fiduciary duty, and a duty to act in good faith, even without signed confidentiality and non-competition agreements.
In the case of RBC Dominion Securities v. Merrill Lynch Canada Inc. (2008 SCC 54), the Manager of RBC Cranbrook branch migrated to Merrill Lynch and arranged for virtually all of the investment advisors to leave without notice. The Supreme Court of British Columbia held, and the Supreme Court of Canada confirmed, that: 1) the former employees breached the implied terms of their employment contracts requiring reasonable notice and prohibiting unfair competition, and 2) the former RBC Manager breached his contractual duty by coordinating the departure and failing to inform RBC management.
It is important to note that the Court expressly found that neither the manager nor the investment advisors were fiduciary employees. They did however have an implied contractual duty of good faith, which required 1) that they give reasonable notice of termination and 2) that they not use confidential information during such reasonable notice period. The Court made it clear that there is no implied duty not to compete, but only an implied duty not to improperly use confidential information.
As to the former manager, the Court found that he had an implied contractual duty during the term of his employment to retain other RBC employees who were in his supervision. It was the breach of this contractual duty which caused extensive damage to RBC. In addition, the Court found that Merrill Lynch had induced the employees to breach their implied duty not to compete unfairly and as such was jointly and severally liable for the damages suffered by RBC. Those damages were assessed by the Court as 5 years loss of profits in the amount of $1.5 million.
It must be noted that the damage award against the former RBC Manager was based upon an implied duty during his period of employment to retain the investment advisors as employees of RBC. With respect to the employees, they had a duty not to use confidential information during the reasonable notice period. Absent an express agreement, there was no obligation not to compete.
Larry P. Carr, Q.C.
CLIENT IDENTIFICATION RULES
Lawyers are now required to obtain, verify, and retain client identity documentation
As part of a national initiative to fight fraud, money laundering, and terrorist financing, while also maintaining the public interest in a strong and independent legal profession, the Law Society of Alberta has instituted a new set of rules regarding client identification. These rules are effective December 31, 2008 and require lawyers to obtain prescribed identification from their new and existing clients for all matters.
When acting for individuals, lawyers must obtain and record the client’s full name, business address and telephone number (if applicable), home address and telephone number, and the client’s occupation.
To verify the client’s personal identity, lawyers are required to obtain and retain copies of reliable documentation, which may include items such as a driver’s license, birth certificate, provincial health insurance card, passport, or other similar records
When acting for organizations, lawyers must obtain and record the organization’s full name, business address and telephone number, incorporation or business identification number, and the place of issue of its incorporation or business identification number (if applicable), as well as the general nature of the business or activity in which the organization is engaged. Exempted are financial institutions and their subsidiaries, public bodies, and reporting issuers.
To verify an organization’s identity, lawyers are required to obtain appropriate source documents, such as certificates of corporate status or annual returns, as well as minute books, confirming an organization’s existence. If an organization is not registered in a government registry, independent source documents may be used to verify the identity of the organization, such as partnership agreements, joint venture agreements, or other records that confirm the organization’s existence. In the case of a trust, documents establishing or amending the trust and identity of the trustees may also be used.
When a client is an organization, lawyers will be required to make reasonable efforts to obtain and record the name and occupation of all directors and officers. Additionally, the names, addresses, and occupations of all persons who own 25% or more of the organization or shares in the organization are to be obtained and recorded. For each individual who is authorized to instruct counsel on behalf of an organization, information about the individual, including his or her name, position, and contact information, must likewise be obtained.
There are times when a lawyer is retained by a client who is an agent for another person or organization. In such cases, the lawyer is required to collect the same information about the third party who is directing or instructing, or has authority to direct and instruct, as if the lawyer had been retained directly by that third party.
Lawyers are required to keep copies of identification and verification information and documents. This information and documentation must be kept for the duration of the lawyer and client relationship, and for as long as is necessary for the purpose of providing service to the client, or at least six years following the completion of the work for which the lawyer was retained, whichever is longer.
If a lawyer is retained in a new matter and in the course of completing client identification or verification, knows or ought to know that he or she may be assisting the client in fraud or illegal conduct, the lawyer is forced to withdraw.
The new rules have been implemented for the protection of the public rather than as a means to inconvenience anyone or to gather personal information for the sake of being intrusive; it is in everyone’s best interests that these new rules are implemented and followed. We hope that clients will understand and appreciate the reasons for instituting such measures.
Sylvester J. Holik, Student-at-Law