Coup d’états are seldom seen outside of countries with political unrest, remaining a remote possibility for private businesses and employers. However, as one Greater Toronto Area law firm recently discovered, it is not impossible.

At 1 p.m. on the Friday afternoon of the 2021 Thanksgiving long weekend, Savannah Chorney, an associate lawyer with Sokoloff Lawyers, closed the Brampton office, asked the other employees to leave their computers on but not password-protected, and arranged for the locks to be changed and the firm’s sign removed. She then proceeded to download client files and prepared a new letterhead for her personal firm — all without notice to her employer.

Three days later, on Thanksgiving Monday, Chorney sent an email to the firm’s principal, Wendy Sokoloff, advising that she was resigning to start her own firm. She also advised that another lawyer at the Brampton office, Melissa Macleod, along with the four law clerks would be joining her and that they intended to operate her new firm out of the same premises. Chorney stated that she would be “contacting (her) clients to advise them of (her) departure, and (she) will present them with their three options as required by the Law Society,” the court heard.

By the following morning, Sokoloff Lawyers began receiving client file transfer authorizations, resulting in more than 200 clients transferring to the “new” firm.

Before the “takeover,” the Brampton office had been extremely lucrative. It had doubled its revenue to $5.5 million between 2014 to 2020. Chorney’s compensation was based upon 40 per cent, meaning she was paid $2.17 million in 2020.

Naturally the law firm sought remedy for the damages incurred and brought an application, as well, for injunctive relief for upfront payment of the disbursements on the transferred files, and for arrangements as to how Sokoloff Lawyers would be compensated for legal work performed before the files were transferred.

In a decision released on Nov. 26, 2021, the Ontario Superior Court of Justice found that that Chorney had conducted “a planned and deliberate operation” to take over the Brampton office of the law firm. Further, the court found that Chorney had contacted clients about the transfer of files before she resigned from the firm.

Sokoloff Lawyers relied on a similar case from 2009, where three associate lawyers and a paralegal removed 250 client files on Christmas Eve and resigned from a law firm to start their own firm: Grillo v. D’Angela, 2009 CanLII 7 (ON SC).

In that case, the court found the lawyers staging the takeover breached their duties of loyalty and good faith by: (a) contacting clients for their own purposes to induce them to leave the firm while they were still employed; (b) quitting without notice; (c) taking client files without the firm’s knowledge and permission; (d) using the client files after their departure for the purpose of contacting clients of the firm with a view to inducing them to switch to the new firm; and (e) depriving the firm of the opportunity to inform its clients of the defendants’ departure, of the options available to the clients and of the consequences of the various options.

The court ultimately ordered that, within five months, Chorney and the other employees involved had to pay Sokoloff Lawyers the disbursements on all transferred files, along with at least 25 per cent of the final fees upon settlement of the transferred files.

This case serves as a warning to both employers and employees with respect to transition of practices. These circumstances are not unique to the legal world and can apply to dental and accounting practices, or the transfer of, for example, investment advisers or insurance brokers. Or perhaps, even more broadly within the business world.

Accordingly, an employee who has significant contact with an employer’s clients is wise to provide their employer with reasonable notice of their departure before moving, attempting to move a book of business elsewhere or to start their own shop. Injunction motions can be costly for all parties involved and may result in a public airing of dirty laundry — which I am sure Sokoloff Lawyers and its former associates would have wished they had avoided.

But remember, existing employees of all stations have a duty of fidelity to their employers and cannot solicit clients while still employed or do anything else which damages their client’s interests. Failing to abide by those obligations can have calamitous consequences.

BY HOWARD LEVITT AND ANOUSHKA ZACHARIAH

Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada. Anoushka Zachariah is an associate at Levitt Sheikh.

THIS ARTICLE ORIGINALLY APPEARED HERE: https://financialpost.com/fp-work/howard-levitt-the-takeover-of-a-company-branch-by-an-executive-sends-a-warning-to-all-businesses

Stay informed with the latest legal developments at Global Law Experts

Join

who are already getting the benefits

Sign up for the latest legal briefings and news within Global Law Experts’ community, as well as a whole host of features, editorial and conference updates direct to your email inbox.

Naturally you can unsubscribe at any time.

About Us

Global Law Experts is dedicated to providing exceptional legal services to clients around the world. With a vast network of highly skilled and experienced lawyers, we are committed to delivering innovative and tailored solutions to meet the diverse needs of our clients in various jurisdictions.