Can I Quit And Start Competing: Dispute Born Of Competing Fertility Clinics – Employment and HR


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Genesis Fertility Inc. v. Yuzpe 2021 BCCA 420 has it
all: intrigue, betrayal and even a “shotgun.” In
addition, it has some useful takeaways for employers who are
navigating employee relations in times of significant
organizational change.

Genesis Fertility is all about the facts, so an overview is
required for context. Genesis Fertility Centre was operated by a
team of physicians practising reproductive medicine in Vancouver:
Sonya Kashyap, Abraham Albert Yuzpe, Elizabeth Lynn Taylor and
Jason Adolph Hitkari. Their relationship was governed by a
shareholders’ agreement, which included a “shotgun
clause.” A shotgun clause is a provision whereby any
shareholder can give notice to any other shareholder, requiring the
other shareholder to elect either to sell their shares or purchase
the shares of the person giving notice.

In November 2012, Yuzpe, Taylor and Hitkari (departing
physicians) decided that they could no longer practise with
Kashyap. They gave Kashyap notice in accordance with the shotgun
clause. Kashyap elected to purchase the shares of the departing
physicians. The departing physicians opened a new fertility clinic,
Olive Fertility Centre in February 2013.

Dr. Gary Samuel Nakhuda was employed by Genesis. In December
2012, Nakhuda tentatively decided to join the departing physicians
at Olive. He participated in the planning of Olive and the hiring
of several members of Genesis’ staff for Olive, without
disclosing his involvement to Kashyap.

Nakhuda joined Olive in June 2013 and subsequently became a
shareholder of Olive.

Genesis sued the departing physicians and Nakhuda for breaches
of their fiduciary duties, the duty of loyalty and fidelity and the
duty of confidence, as well as breaches of Nakhuda’s employment
contract. A lengthy trial commenced, following which the trial
judge found in favour of Genesis against the departing physicians
but dismissed Genesis’ claims against Nakhuda.

Genesis appealed the judgment. A settlement was reached between
Genesis and the departing physicians. The appeal proceeded only on
the parts of the judgment dismissing the claims against Nakhuda and
awarding him costs of the action.

The issues on appeal were whether the trial judge erred by
failing to find that Nakhuda breached his contractual duty of
loyalty and fidelity owed as an employee of Genesis. Genesis
alleged these duties were breached when Nakhuda signed Olive
employment contracts with Genesis employees without informing
Genesis and by participating in the planning and setup of
Olive.

The Court of Appeal, quoting from RBC Dominion Securities
Inc. v. Merrill Lynch Canada
2007 BCCA 22, described the duty
of good faith as “an all pervasive, residual obligation to
further the interests of the employer which is not capable of
exhaustive categorization but which can be relied on by the courts
to compel ‘faithful’ service in a myriad of work
situations.” The Court of Appeal continued, “components
of the duty of fidelity are the duty not to make a secret profit,
the duty of confidentiality, the duty not to compete and the duty
to respect the employer’s business interests.” (para.
29)

The evidence was that in December 2012, within a few days of
Kashyap’s election to purchase the shares of the departing
physicians, the two senior managers began taking steps to create
Olive. The two senior managers prepared letters of employment for
themselves and three other Genesis employees who decided to leave
Genesis for Olive. These five letters of employment were signed, on
behalf of Olive, by the departing physicians and Nakhuda, in some
cases before the employees had provided Genesis with notice of
resignation. Nakhuda did not advise Kashyap that he had signed the
letters on behalf of Olive or that the employees intended to leave
Genesis. The Court of Appeal determined that the trial judge erred
in failing to decide the issue of whether or not this conduct
constituted a breach of the express or implied duties in
Nakhuda’s employment contract (paras. 35- 36).

Due to the retirement of the trial judge and the costs of
ordering a new trial, the Court of Appeal took it upon themselves
to make a determination. The Court of Appeal found that Nakhuda
breached his duty of fidelity, requiring him to act in good faith,
when he signed the letters on behalf of Olive without informing
Genesis. It was clear that Nakhuda acted contrary to the express
provisions of his employment contract which included a provision
that he would not on his own behalf or on behalf of others
“solicit, divert or hire away … any person employed by
Genesis.” (para. 42)

The Court of Appeal concluded that Nakhuda breached both the
express and implied terms of his employment contract.

There are several takeaways from Genesis Fertility.
First, the case reiterates the definition of the duty of good
faith, which is implied in all employment contracts. Second, where
an employee plays an integral role in co-ordinating the departure
of themselves and their co-workers, the employer can commence an
action against that employee for breach of contract of both implied
and express terms. Third, if this scenario could occur in your
workplace, it may be a preventative measure to make an express term
of the employment contract that employees cannot “solicit,
divert or hire away” other employees of the organization. This
would at least put employees on notice that such behaviour is
prohibited.

Previously printed in The Lawyer’s Daily, a LexisNexis
Canada publication.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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