Alberta Court Sees Red, Awards Damages of $2.2 Million
Paul Pulver
In a stunning October decision, the Alberta Court of Queen’s Bench awarded damages of $2.2 million to a terminated financial advisor and, in the process, re-opened the issue of whether damages resulting from the manner of termination should be available where the employer engaged in bad faith conduct.
Kurt Soost was a “star” financial advisor in Calgary who was recruited away from RBC Dominion Securities by Merrill Lynch in 1998. By 2001, his book of business had grown to $150 million and he was recognized as one of the employer’s top five performers nationally. However, Soost had participated in private placements without receiving approval from the firm’s compliance department, and created a “concentration problem” for the firm when he and his clients purchased a substantial amount of a speculative biotech stock. Following a meeting in April 2001, the firm determined that Soost was “out of sync” with the firm’s policies and direction, and he was terminated for cause. He was told not to return to the office, and his clients were assigned to other financial advisors. Although he found employment elsewhere, Soost lost the vast majority of his clients, and was forced to leave the industry.
At the trial, which commenced in January 2008, the employer argued that Soost breached industry and firm policy by, among other things, failing to receive approval for his private placement activities, failing to use margin in an appropriate manner, and engaging in discretionary trading. Soost replied that the firm’s policies were inconsistently applied, and that he was terminated in order to allow Merrill Lynch to address its concentration problem.
The court eventually sided with Soost, finding that there was confusion about the application and enforcement of the private placement policies, the manner in which Soost managed his margin accounts was not sufficient on its own to justify his termination, and the firm did not prove the existence of discretionary trading.
After awarding Soost 12 months’ pay in lieu of notice, which amounted to $600,000, the court considered the issue of damages resulting from the manner of termination, and concluded that both parties knew that if Soost was terminated without notice, he would suffer damages far greater than the loss of income during the notice period. In an industry where reputation means everything, a sudden departure raises suspicions and prevents a financial advisor from maintaining a book of business. Accordingly, the firm’s actions in purporting to terminate Soost for just cause “were both unfair and insensitive”, such that Soost would be “woefully under-compensated for his true loss” unless additional damages were awarded. Taking “a conservative approach”, the court reviewed Soost’s gross trailing commissions, and awarded him an additional $1.6 million.
In light of this decision, employers should be extremely cautious when considering the termination of employees who rely on a book of business to earn an income.
Paul Pulver is part of the panel Q&A Session: The Law in the Workplace as part of the Employment track of Conference 2010. For more information on this and other sessions, please refer to www.bchrma.org/conf2010.
About the Author:
Paul M. Pulver is a partner with Coutts Pulver. Paul received his LL.B. from the University of British Columbia in 1994. He was called to the BC Bar in 1995. Paul acts for a wide variety of employers and employees in the private and public sectors. He has appeared as counsel before various courts and administrative tribunals, including the British Columbia Supreme Court, the British Columbia Court of Appeal, the Federal Trial Court and Court of Appeal, the BC Labour Relations Board, the Canada Industrial Relations Board, the B.C. Employment Standards Tribunal, the B.C. Human Rights Tribunal, and arbitration boards.