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LEGAL REPORT/LABOUR & EMPLOYMENT Putting the 'strict' into restrictive covenants Employment lawyers are noticing a more vigorous application of the principles at all stages of the court process. BY JUDY VAN RHIJN A ll over the country, courts are putting the "strict" into restrictive covenants. Not only are they shaking up the generally accepted posi- tion that non-solicitation clauses are easier to enforce than non-competition clauses, they are pulling the rug out from under injunction-based strategies and forcing litigants down the more traditional and difficult path towards damages. While the legal principles connected with the use of restric- tive covenants in employment contracts are well-established and generally consistent across the country, employment law- yers are noticing a more vigorous application of the principles at all stages of the court process. Practitioners in Alberta have been surprised by a recent decision where their Court of Appeal took an extremely narrow view of a non-solicitation clause. In Globex Foreign Exchange Corp. v. Kelcher, it refused to enforce a non-solicitation clause, finding that its references to "dealings" and "any business or activity" were ambiguous and therefore unreasonably wide. Tom Ross, a partner at McLennan Ross LLP in Calgary says it is not surprising the Court of Appeal took a very strict approach, but it is surprising how far it went with it. "They went much farther than necessary and contrary to what people would expect," he comments. "Things that seem pretty obvious to a person when reading the covenant, they found to be ambigu- ous." Ross generally advises his clients that if they can be satisfied with a non-solicitation clause, then they should leave it at that. "There is a clearer connection between a legitimate business concern and the potentially offending conduct than with a non-competition clause. But this case shows that even non- solicitation clauses are not immune from attack. It will have a very chilling effect on actions in general." Elsewhere in Canada, the decision is not causing as much surprise as it has in Alberta. "In Ontario there is clear direc- tion from the Court of Appeal with respect to non-solicitation clauses in Lyons v. Multari," says Connie Reeve of Blake Cassels & Graydon LLP in Toronto. "Globex is absolutely in line with the position in Ontario. The protectable interest is the special relationship between the employee and the employer's custom- ers that he or she dealt with." Reeve still sees old non-solicitation covenants that purport to restrict contact with any customer. "A company can have customers all over the world that the employee never dealt with. The courts are saying, "Not so fast. The employee didn't have a special relationship with them." According to Jeff Goodman of Heenan Blaikie LLP in Toronto, the most significant trend he and his Ontario col- leagues are seeing is procedural in nature, with much greater scrutiny of the merits of a case at the interlocutory stage. "We are not seeing nearly as many successful motions for injunctions as we used to. In past times, when a former employee joined the competition or began soliciting a client, the employer would obtain a 10-day injunction, and some kind of settlement would then follow. More often than not, whoever got the injunction won the day and the matter was only litigated in a preliminary way. The company stopped the departed employee's behaviour that they were concerned about, and moved on." This meant that the difficulties of proving the extent of the breach and the quantity of the loss rarely had to be grappled with. "These are cases, not about 'How do you get the caramel in the caramel bar?' but about a permanent loss of clients which would do you irreparable harm," explains Goodman. "Say you lost McDonald's as a client; formerly you would say, you can't calculate that sort of damage, so the appropriate remedy is an injunction." This began to change when Justice Ian Nordheimer in Nes- bitt Burns Inc. v. Lange and then Justice David Corbett in BMO Nesbitt Burns Inc. v. TD Waterhouse Investor Services said you can calculate the loss in financial terms. Recent decisions apply the reasoning that, even though the loss is significant, if the company is likely to stay in business and the loss is capable of monetary calculation, the injunction will not be granted. The ability of computer technology to very quickly provide detailed information on clients now assists with the calculation of pres- ent and projected losses. This includes the normal attrition rate for clients and the size of each client investment. The judicial attitude seems to be that the plaintiff may not get any lost cli- ents back, but they can be compensated for the loss if the main action is successful. The Supreme Court of Canada endorsed this approach in RBC Dominion Securities v. Merrill Lynch Canada Inc., which started when the Superior Court in British Columbia refused to issue an injunction and said this kind of case can be settled www.CANADIAN Lawyermag.com N O VEMBER / D ECEMBER 2011 47 HUAN TRAN