Edward Jones v. Voldeng: Investment Advisors, Non-Solicitation Covenants, and Injunctions
July 9, 2012
In Edward Jones v. Voldeng, 2012 BCCA 295 (“Voldeng”), the British Columbia Court of Appeal considered the test for granting an interlocutory injunction in the context of a restrictive covenant prohibiting solicitation contained in the employment contract of an investment advisor. The Court made several notable remarks regarding the irreparable harm and balance of convenience elements of the test for granting an interlocutory injunction.
Randy Voldeng, an investment advisor, worked at Edward Jones, a national brokerage firm. The employment agreement contained a restrictive covenant that prevented Mr. Voldeng from soliciting sales from any client of Edward Jones after his employment relationship with Edward Jones ended.
Ultimately, Mr. Voldeng left his employment with Edward Jones and commenced employment with a competing brokerage firm. Shortly after leaving Edward Jones, Mr. Voldeng contacted a number of Edward Jones’ clients and allegedly encouraged them to transfer their accounts to the competing brokerage firm.
Edward Jones commenced an action and sought an interlocutory injunction restraining Mr. Voldeng from making further solicitations.
In order to obtain an interlocutory injunction, an applicant must establish that:
- there is a serious question to be tried;
- the applicant will suffer irreparable harm if the injunction is not granted; and
- the balance of convenience favours granting the injunction.
The lower court held that Edward Jones had established these three elements. Accordingly, the lower court granted an interlocutory injunction.
The key issues on appeal were whether there was evidence of irreparable harm and whether the balance of convenience favoured granting the injunction. There was no dispute that there was a serious question to be tried.
Mr. Justice Chiasson, writing for the Court, began by describing two types of irreparable harm:
- harm that cannot be quantified in monetary terms, such as permanent market loss or irrevocable damage to business reputation; and
- harm that cannot be compensated because, for example, an award of damages will not be collectible.
The lower court accepted that the facts gave rise to the first type of irreparable harm. It held that damages were not an adequate remedy for the alleged breach of the non-solicitation covenant because it would be extremely difficult to separate damages for loss of business caused by the breach from those resulting in fair competition.
The Court disagreed. In its view, “the damages that flow from a violation of a non-solicitation covenant in the employment contract of an investment advisor generally are calculable”. This is because the industry is regulated in a manner such that the “value of the portfolio of a departing client is known, as is the return to the brokerage firm of managing the portfolio.”
In the case at bar, the evidence was clear that Mr. Voldeng had received instructions to transfer client accounts with an approximate total value of $20.2 million. Accordingly, the potential damages arising out of the alleged solicitation, being calculable, did not constitute irreparable harm.
Turning to the assessment of whether the balance of convenience favoured the granting of an injunction, the Court held that “in the context of a non-solicitation covenant, the interests of an individual investment advisor and his or her clients often tips the balance of convenience in favour of the investment advisor.”
In particular, the Court recognized that the interests of the clients of an investment advisor are a legitimate public policy factor to consider in the balance of convenience analysis. On this point, the Court cited previous decisions which emphasized that “clients should be free to receive information from all competitive sources and to have the ability to decide if they wish to follow a person with whom they have developed an individual trust and confidence regarding investment advice.”
The Court also noted that while the “interests of the clients of investment advisors are a legitimate factor to take into account, [they] should not be considered as unique to that relationship.” Accordingly, “[t]here are many other relationships in which similar interests may be relevant.”
In the course of assessing the balance of convenience, the Court also observed that granting the interlocutory injunction could have caused irreparable harm to Mr. Voldeng “because, if his conduct were found to be proper, it would not be possible to determine which of his clients would have shifted to [the competing brokerage firm] if he had been able to inform them of his contact particulars.”
Based on these factors, the Court concluded that the balance of convenience did not favour the granting of an injunction.
In the result, having determined that the irreparable harm and balance of convenience elements were not met, the Court overturned the lower court’s decision to grant an interlocutory injunction.