Court orders Kitchener brokers, brokerage to pay $1.9 million in client-poaching case

The Ontario Superior Court has ordered two Kitchener, Ontario brokers and brokerage Stevenson & Hunt Insurance Brokers to pay Cdn$1.9 million in a case related to client-poaching.Tim Allan and Jeff Kienapple were commercial insurance producers with H. L. Staebler Company Ltd. as of Oct. 15, 2003, when they submitted their immediate resignations from their employment with Staebler.Their assistants, Leah Asseltine and Deborah Magnus, submitted their resignations from Staebler at virtually the same time.The reason for the resignations, although not known to Staebler at the time, was that all four individual defendants had accepted employment with Stevenson & Hunt Insurance Brokers (KWC) Limited, the Ontario Court of Appeal noted in its findings of fact. By the end of the day, Staebler began receiving written notification from clients, who had been serviced by Allan and Kienapple, that they were transferring their insurance business to Stevenson & Hunt.Between Oct. 15, and Oct. 29, 2003, approximately 118 Staebler clients transferred their insurance business to Stevenson & Hunt, the court found.Allan and Kienapple had both signed employment contracts with Staebler. The employment contracts contained restrictive covenants of two years duration purporting to limit the departing employees from conducting business with any customers of Staebler that were serviced by the employees at the date of their resignations.The employment contracts also provided that the damages suffered by Staebler for breach of the employment agreements would be equal to 1-1/2 times the commission earned by the new employer from the clients who transferred their business as a result of a breach of the restrictive covenant.Staebler sued Allan, Kienapple and Stevenson & Hunt for various causes of action including breach of the employment agreements, breach of fiduciary duty, conspiracy and inducing breach of contract. The defendants denied liability on the basis that the restrictive covenants were unenforceable, that the individual defendants were not fiduciaries and that the damage clause in the employment contracts is a penalty clause.I have come to the conclusion that the restrictive covenant in the Allan and Kienapple employment contracts with Staebler is enforceable, Ontario Superior Court Justice G.E. Gaylor wrote in his decision. I have also concluded that the liquidated damage clause in the employment contracts is enforceable. Thirdly, I find that Stevenson & Hunt are liable to Staebler for inducing Allan and Kienapple to breach their employment contracts.