Tuesday, 30 August 2016

Agreement “Not to Accept Business” Actually a Non-Competition Agreement: ONCA

When is a non-solicitation provision in an employment contract actually a non-competition agreement? The answer is, when it prevents the employee from “accepting business from” any former corporate accounts or customers.

In a short endorsement released August 30, 2016, Donaldson Travel Inc. v. Murphy, 2016 ONCA 649, the Court of Appeal for Ontario confirmed an earlier decision of the Honourable Justice David A. Broad of the Superior Court of Justice, dismissing the plaintiff employer’s claims for breach of contract, misappropriation of confidential information, inducing breach of contract and interference with contractual relations against its former employee travel agent and her new travel agency employer.

Facts

The facts of the case were simple, the issues on appeal boiled down to whether the motion judge erred: i) in interpreting the restrictive covenant in the respondent former employee’s employment contract with the appellant as a non-competition clause as opposed to a non-solicitation clause and in therefore finding it unreasonable and unenforceable; and ii) in finding that the former employee had not misappropriated the appellant’s confidential information.

The covenant at issue provided as follows:

[Employee] agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by [employer], directly, or indirectly.

Based primarily on the language “or accept business” Justice Broad found that the clause at issue restricts competition and is not merely a non-solicitation clause.

Decision

The Court of Appeal (Feldman, Simmons and Lauwers JJ.A.) saw no error in the motion judge’s finding that the restrictive covenant was, in fact, a non-competition clause, holding as follows:

[5] We see no error in this conclusion. The motion judge’s interpretation was available based on the plain wording of the clause. The fact that the appellant [employer] abandoned previous employment contracts containing more restrictive non-competition clauses and that its policy manual required only that employees sign a non-solicitation agreement does not change this conclusion. We see no basis on which to interfere with the motion judge’s finding. Further, given that the restrictive covenant is a non-competition clause (as opposed to a non-solicitation clause) and also because it contains no temporal limitation, there is no basis on which to interfere with the motion judge’s conclusion that the clause is unreasonable and therefore unenforceable: J.G. Collins Insurance Agencies Ltd. v. Elsley, [1978] 2 S.C.R. 916, at para. 19; H.L. Staebler Co. v. Allan, 2008 ONCA 576, 92 O.R. (3d) 107, at para. 36. The appellant’s arguments concerning severance of the phrase “or accept business” have no merit: Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157 at para. 36. Finally, and in any event, we note that the record before the motion judge failed to establish that the departed employee had solicited any of the appellant’s clients.

The employer’s appeal was dismissed with costs of $7,500.00 awarded to the successful employee.

Commentary

This blog has previously considered the issue of non-competition clauses and when they will be enforceable, see e.g. "If you liked it, then you shoulda put a ring on it:" What Beyonce can Teach Employers about Employment Law. Frankly, it is not surprising that the court found the phrase “accept business from” to be more than a simple non-solicitation clause.

What is a little surprising, and reassuring, is the court’s refusal to allow the ‘severance of any offending provision’ clause of the contract to remove the offending words, thus leaving a legally enforceable agreement. There was some concern that the court had done just that in the case of Oudin v. Centre Francophone de Toronto, 2016 ONCA 514 (released June 28, 2016), summarized by this blog in the post The ONCA’s Decision in Oudin v. CFT Leaves One 'Wundering' – Is Wunderman Dead?. My full commentary on the concerns with that case can be found in my earlier posts. Suffice to say, I prefer this decision to that of the one reached in Oudin.

Takeaways for Employees with Labour Pains

As with most cases concerning non-competition agreements, the takeaway for employees is that it is always prudent to seek professional legal advice on the terms of your employment agreement before taking any steps that may contravene that agreement or unnecessarily restrict your actions. In this case, had the employee unquestionably followed the agreement she may have sold herself short.

If you are an individual looking for assistance with respect to the interpretation or enforceability of the terms of your employment contract, then contact the professional, experienced and cost-effective employment lawyers for employees at Ottawa's Kelly Santini LLP; we would be happy to be of service to you.

Takeaways for Employers with Labour Pains

For employers the lesson is simple: Have your employment contracts professionally prepared. Non-solicitation provisions and even non-competition clauses can be legal and will be enforced by the courts in the appropriate case. However, as courts are demonstrably reluctant to give effect to poorly drafted contracts it pays to have a lawyer prepare such an agreement for you. After all, a contract is only worth something if you can actually enforce it.

If you are an employer and want to ensure that you can rely on your non-competition agreement if and when the time becomes necessary, contact the professional, experienced and cost-effective employment lawyers for employers at Ottawa's Kelly Santini LLP; we would be happy to be of service to your business or organization.

Contact Me

To reach the author of this blog, Sean Bawden, email sbawden@kellysantini.com or call 613.231.7952.

Sean P. Bawden is a partner with Kelly Santini LLP, located in Ottawa, Ontario, Canada. He practices in the areas of employment law and civil litigation. He has also taught Trial Advocacy for Paralegals and Small Claims Court Practice at Algonquin College in Ottawa.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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