Acting in company’s interest no protection from personal liability, Court rules in recruitment case

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A recent ruling by the Ontario Court of Appeal should be of more than passing interest to managers considering embarking on an aggressive recruitment drive to lure talent from competitors. In ADGA Systems International Ltd. v. Valcom Ltd. (January 12, 1999), the Court ruled that, where it can be shown that damage was caused to another company as a result of the recruitment, employees and directors of the offending firm may be held personally liable.

ADGA had a substantial contract with Correctional Services Canada for technical support and maintenance of security systems. When the contract was up for renewal and a call for tenders went out, one of the conditions was that the tendering party provide the names and qualifications of 25 senior technicians on its staff. ADGA alleged that its competitor, Valcom, had convinced ADGA technical staff to allow their names to be used in its tendering document, to work for Valcom if its tender was successful, and to persuade other employees to do the same. The results were that both companies listed the same staff in its bids, and Valcom was the successful bidder.

ADGA sued Valcom, Valcom’s sole director and two of its senior employees for damages for the tort of inducing breach of fiduciary duty. Valcom moved for the summary dismissal of the action against the three individual defendants on the grounds that there was no genuine issue for trial against them in their personal capacities. The motion was denied by the motions judge but granted on appeal to the Divisional Court. In granting the motion, the Divisional Court held that there could be no cause of action against the three, as the evidence showed they were pursuing their employment duties in Valcom’s interests, and had not acted in their personal interests.

The Court of Appeal disagreed with this reasoning, and denied the motion for summary dismissal of the action against the individuals. The Court held that the Divisional Court had erred in believing that the law protected all conduct by officers and employees in pursuit of corporate purposes.

The general rule, the Court stated, is that individuals are responsible for their own conduct. For policy reasons, however, the law makes an exception for officers and employees who, in the course of carrying on business, cause their own company to breach a contract with another contracting party. However, the Court held, where corporate officials commit tortious acts that cause harm to others, even when such acts are taken in the best interests of the corporation, they may be held liable for the damages even though the corporation may also be liable:

“The consistent line of authority in Canada holds simply that … officers, directors and employees of corporations are responsible for their tortious conduct even though that conduct was directed in a bona fide manner to the best interests of the company.”

For further information, please contact Jacques A. Emond at (613) 563-7660, Extension 224.