Flag Works Inc. v. Sign Craft Digital (1978) Inc. et al., (2007) 427 A.R. 206 (QB)

• Judge: Martin, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: May 23, 2007
• Citations: (2007), 427 A.R. 206 (QB);2007 ABQB 434

Flag Works Inc. v. Sign Craft Digital Inc. (2007), 427 A.R. 206 (QB)

MLB headnote and full text

Temp. Cite: [2007] A.R. TBEd. OC.027

Flag Works Inc. (plaintiff) v. Sign Craft Digital (1978) Inc., Nicole Finlay, Mary Holt, Darryl Jensen and Trent de Goesbriand (defendants)

(0301-03966; 2007 ABQB 434)

Indexed As: Flag Works Inc. v. Sign Craft Digital (1978) Inc. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Martin, J.

June 28, 2007.

Summary:

The plaintiff was a small, privately run company. Finlay and Holt, the two employees who "managed" sales and production for the plaintiff's flags and banners division, quit their employment several months apart and for different reasons. Both gave notice and were subsequently hired by the defendant company, which then competed with the plaintiff. The plaintiff brought an action for damages against the employees, claiming that they were "key employees" who breached their contractual, statutory and fiduciary obligations. The employees had copied and used the plaintiff's confidential customer list to solicit customers. Holt also substantially copied the plaintiff's marketing brochure. The customer list was shredded by Finlay when the plaintiff commenced its action. There were no contractual provisions respecting termination, non-competition or confidentiality. The defendant company and its owner were sued for inducing breach of contract and on the basis of vicarious liability.

The Alberta Court of Queen's Bench allowed the action in part. The defendant employees were not "top or senior management" and owed no fiduciary duties because they had no discretion to affect the plaintiff's relevant financial or legal interests. Neither was precluded by contract or equity from competing with the plaintiff and soliciting its customers. The notice of termination given by each employee was sufficient. Neither employee possessed or used trade secrets or confidential information. However, both employees were liable at common law for copying and misusing the plaintiff's customer list and Holt was liable for taking the plaintiff's confidential supplier's list and for breaching the plaintiff's copyright in its brochure. The defendant company and its owner, although vicariously liable for the employees' conduct, was not liable in its own right for inducing breach of contract. The court awarded $15,000 damages for misuse of confidential property (apportioned equally between the employees), $1,000 punitive damages against Finlay for destroying the plaintiff's customer list in the face of litigation and $3,000 against Holt for breach of copyright. The defendant company was vicariously liable for all damages.

Copyright - Topic 4405

Infringement of copyright - General principles - Substantial similarity or substantial copying - [See Master and Servant - Topic 4306 ].

Copyright - Topic 4586

Infringement of copyright - Remedies - Damages - [See Master and Servant - Topic 4306 ].

Damage Awards - Topic 2028

Exemplary or punitive damages - Conversion of business assets - [See Master and Servant - Topic 4306 ].

Equity - Topic 3721

Fiduciary or confidential relationships - The employer-employee relationship - General - The plaintiff was a small, privately run company - Finlay and Holt, the two employees who "managed" sales and production for the plaintiff's flags and banners division, quit their employment several months apart and for different reasons - Both gave notice and were subsequently hired by the defendant company, which then competed with the plaintiff - The plaintiff brought an action for damages against the employees, claiming that they were "key employees" who breached their fiduciary obligations - The employees had copied and used the plaintiff's confidential customer list to solicit customers - Holt also appropriated the plaintiff's confidential supplier list and substantially copied the plaintiff's copyrighted marketing brochure - The customer list was shredded by Finlay when the plaintiff commenced its action - There were no contractual provisions respecting termination, non-competition or confidentiality - The Alberta Court of Queen's Bench dismissed the breach of fiduciary duty claim - The employees were not "top or senior management" and owed no fiduciary duties because they had no discretion to affect the plaintiff's relevant financial or legal interests - Their "manager" titles exceeded the actual authority and responsibilities that they possessed - Dependency and vulnerability were indispensable features of a fiduciary relationship - Neither employee was precluded by contract or equity from competing with the plaintiff and soliciting its customers - See paragraphs 27 to 55.

Master and Servant - Topic 1227

Contract of hiring (employment contract) - Termination - Notice of termination - By employee - Statutory regulation - At issue was whether employees gave reasonable notice to the employer when they quit - Both had given at least the minimum notice required by the Employment Standards Code - The issue was whether further notice was required - The Alberta Court of Queen's Bench stated that "I do not accept ... that the amount of notice to be given by an employee should be calculated the same way a court approaches notice when an employee sues an employer for unjust dismissal. The policy considerations at play in each case are different. Employees are required to give notice to permit the employer adequate time to hire a replacement or adapt operations to minimize the loss or disruption caused by the employee's departure. Employers are required to give notice to 'cushion the blow' to the employee of losing their employment. ... relevant factors to consider in determining an employee's notice obligations: the employee's responsibilities, the employee's length of service, the employee's salary; and, the time reasonably required for an employer to replace the employee or take steps to adapt to the loss. ... Most case law seems to set notice based on the position held at the end of employment and I adopt that ... approach." - See paragraphs 61 to 63.

Master and Servant - Topic 1227

Contract of hiring (employment contract) - Termination - Notice of termination - By employee - Statutory regulation - Holt and Finlay quit after eight and two years' employment respectively - Finlay gave three weeks' notice, which the employer agreed to - Holt gave two weeks' notice, the statutory minimum under the Employment Standards Code - The employer submitted that neither employee gave reasonable notice - The Alberta Court of Queen's Bench held adequate notice was given - Finlay had offered increased notice, but the employer agreed to the three weeks' notice given - Respecting Holt, the court determined that the statutory notice was sufficient - The employer quickly and readily found a replacement from within the company - While Holt's replacement purportedly took months to feel "comfortable" in Holt's old position, that was not Holt's fault - Had the replacement devoted the two weeks to being trained by Holt (too busy with other tasks), he would have been adequately trained - See paragraphs 65 to 81.

Master and Servant - Topic 4207

Duties of servant - General - Fiduciary duty - [See Equity - Topic 3721 ].

Master and Servant - Topic 4306

Duties of servant - On termination - Competition in business - Use of employer's material or process - The plaintiff was a small, privately run company - Finlay and Holt, the two employees who "managed" sales and production for the plaintiff's flags and banners division, quit their employment several months apart and for different reasons - Both gave notice and were subsequently hired by the defendant company, which then competed with the plaintiff - The plaintiff brought an action for damages against the employees, claiming that they were "key employees" who breached their contractual, statutory and fiduciary obligations - The employees had copied and used the plaintiff's confidential customer list to solicit customers - Holt also appropriated the plaintiff's confidential supplier list and substantially copied the plaintiff's marketing brochure - The customer list was shredded by Finlay when the plaintiff commenced its action - There were no contractual provisions respecting termination, non-competition or confidentiality - The defendant company and its owner were sued for inducing breach of contract and on the basis of vicarious liability - The Alberta Court of Queen's Bench allowed the action in part - The defendant employees were not "top or senior management" and owed no fiduciary duties because they had no discretion to affect the plaintiff's relevant financial or legal interests - Neither was precluded by contract or equity from competing with the plaintiff and soliciting its customers - However, both employees were liable at common law for copying and mis-using the plaintiff's confidential customer list and Holt was liable for breaching the plaintiff's copyright by substantially copying and using its brochure - The defendant company and its owner were vicariously liable for the employees' conduct, but not liable for inducing breach of contract - The court awarded $15,000 damages for misuse of confidential property (apportioned equally between the employees), $1,000 punitive damages against Finlay for destroying the plaintiff's customer list in the face of litigation, and $3,000 against Holt for breach of copyright - The defendant company was vicariously liable for all damages - See paragraphs 89 to 180.

Master and Servant - Topic 4524

Liabilities of servant - To master - Respecting master's property - [See Master and Servant - Topic 4306 ].

Torts - Topic 2530

Vicarious liability - Master and servant - Employer - Liability for acts of employees - [See Master and Servant - Topic 4306 ].

Torts - Topic 5208

Interference with economic relations - Contracts - Inducing or procuring breach of contract - [See Master and Servant - Topic 4306 ].

Cases Noticed:

Canadian Aero Service Ltd. v. O'Malley et al., [1974] S.C.R. 592; 40 D.L.R.(3d) 371, refd to. [para. 39].

Frame v. Smith and Smith, [1987] 2 S.C.R. 99; 78 N.R. 40; 23 O.A.C. 84; 42 D.L.R.(4th) 81, consd. [para. 30].

Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd. et al., [1996] 7 W.W.R. 736; 184 A.R. 81; 122 W.A.C. 81 (C.A.), refd to. [para. 47].

Physique Health Club Ltd. v. Carlsen et al. (1996), 193 A.R. 196; 135 W.A.C. 196; 45 Alta. L.R.(3d) 383 (C.A.), refd to. [para. 48].

Alberta Care-A-Child Ltd. v. Payne et al. (2005), 383 A.R. 43; 2005 ABQB 561, refd to. [para. 52].

Clayburn Industries Ltd. v. Piper, [1998] B.C.T.C. Uned. H44; 62 B.C.L.R.(3d) 24; 44 C.C.E.L.(2d) 129 (S.C.), refd to. [para. 54].

Alberts et al. v. Mountjoy et al. (1977), 16 O.R.(2d) 682; 79 D.L.R.(3d) 108 (H.C.), refd to. [para. 54].

Tree Savers International Ltd. et al. v. Savoy et al. (1991), 81 Alta. L.R.(2d) 325 (Q.B.), varied (1992), 120 A.R. 368; 8 W.A.C. 368; 84 Alta. L.R.(2d) 384 (C.A.), refd to. [para. 54].

Torcana Valve Services Inc. v. Anderson et al. (2007), 421 A.R. 157; 2007 ABQB 356, refd to. [para. 57].

Engineered Sound Systems Ltd. v. Klampfer (1994), 3 C.C.E.L.(2d) 105; 47 A.C.W.S.(3d) 740 (Ont. Gen. Div.), refd to. [para. 57].

Sure-Grip Fasteners Ltd. v. Allgrade Bolt & Chain Inc. (1993), 45 C.C.E.L. 276; 46 C.P.R.(3d) 443 (Ont. Gen. Div.), refd to. [para. 61].

RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc. et al. (2007), 235 B.C.A.C. 126; 388 W.A.C. 126; 275 D.L.R.(4th) 385; 2007 BCCA 22, refd to. [para. 63].

Herbert Morris Ltd. v. Saxelby, [1916] 1 A.C. 688 (H.L.), refd to. [para. 83].

Capitanescu et al. v. Universal Weld Overlays Inc. et al. (1997), 204 A.R. 81; 52 Alta. L.R.(3d) 286 (Q.B.), refd to. [para. 88].

Monarch Messenger Services Ltd. v. Houlding (1984), 56 A.R. 147; 5 C.C.E.L. 219 (Q.B.), refd to. [para. 90].

Anderson Preece & Associates Inc. v. Dominium Appraisal Group Inc. et al. (2001), 309 A.R. 124; 2001 ABQB 1073, refd to. [para. 90].

Spiros Pizza & Spaghetti House Ltd. et al. v. Riviera Pizza Inc. et al. (2005), 377 A.R. 266; 49 Alta. L.R.(4th) 360; 2005 ABQB 80, refd to. [para. 109].

Slumber Magic Adjustable Bed Co. v. Sleep King Adjustable Bed Co. et al., [1985] 1 W.W.R. 112; 3 C.P.R.(3d) 81 (B.C.S.C.), refd to. [para. 109].

British Columbia Jockey Club et al. v. Standen (1985), 66 B.C.L.R. 245; 8 C.P.R.(3d) 283 (C.A.), refd to. [para. 109].

Euclid Industries Canada Ltd. v. Reg Holloway Sales Inc. (1989), 27 C.P.R.(3d) 281 (F.C.T.D.), refd to. [para. 109].

U & R Tax Services Ltd. v. H & R Block Canada Inc. (1995), 97 F.T.R. 259; 62 C.P.R.(3d) 257 (T.D.), refd to. [para. 109].

Standard Industries Ltd. v. Rosen et al. (1995), 24 C.P.R. 41; 4 D.L.R(4th) 363 (Ont. H.C.), refd to. [para. 109].

Gosse-Millerd Ltd. v. Devine, [1928] S.C.R. 101; 2 D.L.R. 869, refd to. [para. 129].

Universal Thermosensors Ltd. v. Hibben, [1992] 3 All E.R. 257 (Ch.), refd to. [para. 148].

Penvidic Contracting Co. v. International Nickel Co. of Canada Ltd., [1975] 1 S.C.R. 267; 4 N.R. 1; 53 D.L.R.(3d) 748, refd to. [para. 167].

Royal Bank of Canada v. Got (W.) & Associates Electric Ltd. et al., [1999] 3 S.C.R. 408; 247 N.R. 1; 250 A.R. 1; 213 W.A.C. 1; 178 D.L.R.(4th) 385, refd to. [para. 178].

Counsel:

Gerald J. Kugelmass (Cummings Verstraten Kugelmass), for the plaintiff;

Glen M. Hickerson (Wilson Laycraft), for the defendants.

This action was heard on February 26 to March 22, April 2 to 4, and May 23, 2007, before Martin, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on June 28, 2007.