Why liability for inducing breach of contract needs reassessing?, The Lawyers Weekly, Focus on Business Law, vol. 29, No. 35 , (January 29, 2010)

Why liability for inducing breach of contract needs reassessing?, The Lawyers Weekly, Focus on Business Law, vol. 29, No. 35 , (January 29, 2010)

By Nikolay Y. Chsherbinin

Dismissed employees frequently attempt to bolster their wrongful dismissal claims by pleading economic torts. One of these increasingly pleaded economic torts is the tort of inducing breach of contract (the “inducement tort”), which imposes liability on an employer who intentionally procures a breach of its rival’s employee’s valid employment contract. The nub of liability underlying the inducement tort must be reassessed: treating liability as turning on the breach of a complainant’s contractual rights, rather than on an inducer’s wrongdoing, leads to unnecessary and unfortunate blurring between “interference” and “inducement” cases.

Arguably, the very classification “tort” suggests that the inducement tort ought to be concerned with the inducer’s harmful conduct. However, many operate under the popular but mistaken belief that the inducement tort gave us a tort focused on a complainant’s contractual rights. For example, in RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., [2008] S.C.J. No. 56, Merrill Lynch’s regional manager induced virtually all of RBC’s investment advisors to join his firm. Likewise, in Drouillard v. Cogeco Cable Inc., [2007] O.J. No. 1664, Cogeco’s manager instructed its co-contractor Mastec not to hire Drouillard, resulting in termination of his employment on the day it was to begin.

The nub of liability, in these leading inducement cases, is not that a complainant’s contractual right is being interfered with, but rather that a stranger to a contract intentionally procured the co-contractor to breach its valid employment contract with the complainant.

At the very core of inducement lies a rival’s conduct aimed at procuring a desired action on a part of an inducee. The inducement tort should be viewed as penalizing the inducer’s conduct, rather than compensating the complainant for the breached contractual rights. This conduct-centred theory of liability is reinforced by the fact that dismissed employees seeking to increase their damages typically plead reliance on the inducing employer’s pre-contractual inducements (i.e. conduct), rather than that their contractual relations with the initial employers were interfered with.

RBC’s rival, Merrill Lynch, was found liable for $250,000 for having induced breaches of RBC’s employees’ contracts. RBC appears to validate the conduct- centred theory of liability, as the courts are beginning to recognize and attempting to remedy the commercial loss deliberately caused to the initial corporate employer through its corporate rival’s instrumentality, a subset of the remedy that Canadian employment law has yet to fully develop.

Obviously, it is not automatically improper to poach rivals’ employees, but legitimate competition does not justify interference with existing valid contracts. Simply causing an interference with the employee’s contractual relation with his employer is insufficient to trigger liability under the inducement tort. There must be procurement and the actual breach of the employee’s contract.

More specifically, the inducement tort demands: (1) the knowledge of contract; (2) intention to procure the breach of contract; (3) actual breach of contract; and (4) damage. The inducement tort, however, is peculiarly apt to be confused with the tort of causing loss by unlawful means.

Unlike the inducement tort, the tort of causing loss by unlawful means doesn’t require the existence of a contract or its breach. Designed only to enforce basic standards of civilized behaviour in economic rivalry, it is concerned with the defendant’s own wrongful interference causing economic loss by “unlawful means.” No intermediate party — as in the inducement tort — is necessary.

The tort of causing loss by unlawful means requires: (1) the defendant’s wrongful interference with the actions of a third party in which the plaintiff has an economic interest; (2) intention to cause loss to the plaintiff; (3) use by the defendant of unlawful means; and (4) damage in any form, for example, frustration of economic expectations.

Both torts have strict requirements of intention, but what the defendant intends is different in these two torts. In the tort of causing loss by unlawful means the defendant intends to cause loss, while in the inducement tort, to procure a breach of contract. Given the distinction between rationales of these torts, the courts should carefully distinguish between “inducement” of the breach and mere “interference” with contract cases.

The conduct-centred theory of liability clarifies the real nub for liability in the inducement tort. In concentrating on the complainant’s contractual rights, the courts ignore the inducer’s wrongdoing. But for the inducer’s wrongdoing, there could be no viable claim in the inducement tort.

In the absence of employers’ deliberate procurement causing breach of their rivals’ employees’ valid contracts, the liability should be discussed within the context of the tort of causing loss by unlawful means.

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