Court Grants Permanent Injunction Against Former Employee under Non-Solicitation Clause
In a recent Ontario case, the court took the extraordinary measure of granting a permanent injunction against a former employee under an employment agreement containing non-competition and non-solicitation clauses.
The employer is composed of two Ontario corporations carrying on business internationally in manufacturing and supplying commercial, municipal, utility and industrial lighting solutions. Both are family-run businesses. The employer has affiliated offices or plants throughout Southern Ontario and the United States. The employer’s head office is located in Burlington, Ontario.
The employee formerly worked for the employer. He was hired as a sales manager in August 2011, at an annual salary of $60,000.00 and was responsible for a large territory spanning various parts of the United States and managing business with commercial and government clients located primarily in the United States. In his employment, the employee entered into several employment agreements.
On October 22, 2018, the employee presented his resignation letter to the employer. At the time of his resignation, he advised the employer he was contemplating numerous offers of employment, some of which were from non-competitors of the employer.
On October 26, 2018, the employee advised the employer he was accepting a sales representative position with one of the employer’s direct competitors (the “competitor”).
The employer sought an order to prevent the employee from engaging in employment with the competitor. The employer also moved for a permanent injunction restraining the employee from committing alleged breaches of non-competition, non-solicitation and confidentiality clauses in violation of an “Employee Confidentiality and Non-Competition Agreement” (the “Agreement”) previously entered into by the parties.
At issue was whether the employee had breached his non-competition, non-solicitation and confidentiality obligations under an employment agreement. And, if such a breach was found, did it warrant injunctive relief?
The Terms of the Agreement
The non-competition provision in the Agreement stated:
“I shall not, for a period of two (2) years after the termination of my employment for any reason whatsoever, be employed by a director, officer, shareholder, principal, agent or partner of, operate, act as consultant to, invest in, loan money to, or directly or indirectly engage or be involved in, any person, corporation, association, firm, partnership, or business which has all or part of its undertaking the manufacture, sale or lease of:
a) poles used to carry utility services; or
b) lighting fixtures; or
c) any other products manufactured or sold by [the employer] or any of the [the employer] association corporations, at the time of my termination of my employment, or
d) any or products similar to, or competitive with the products described in (a) (b) or (c) within a 750-mile radius of any [the employer] production facilities.”
The non-solicitation provision specified:
“I shall not, for a period of two (2) years after the termination of my employment for any reason whatsoever:
a) Solicit or entice, or attempt to solicit or entice, either directly or indirectly, any of the employees of [the employer] to enter into employment or service with any business described in Clause 2 above; or
b) Contact any person, firm, corporation, or governmental agency who was a customer of [the employer] at any time during my employment with [the employer].”
In respect of the duty to return confidential information, the retention and disclosure provision stated:
“Upon termination of my employment for any reason, I shall immediately return to [the employer] all customer lists, notes, records, files, communications and memory equipment, tapes, drawings and copies in my possession or control, which contain or refer to the confidential information listed above.”
At the outset, the court stated:
“As a general rule, restrictive covenants in employment agreements are unenforceable, unless they are reasonable between the parties and not adverse to the public interest.”
After reviewing the terms of the Agreement, the court found the non-competition clause to be unenforceable because the geographical restriction of “750-mile radius” was too vague. It stated:
“Given the lack of geographic or spatial definition of the non-competition clause, I find it to be ambiguous and unreasonable. As such, it is overly restrictive and unenforceable.”
However, the court found that the non-solicitation and confidentiality provisions were clear, not ambiguous, and reasonable. It did not agree with the employee’s argument of the difficulty of locating a new job, finding that the non-solicitation clause did not prohibit him from finding a sales position or similar employment.
In addition, the court found that the employer had established it would suffer greater harm if an injunction was not granted in respect of the non-solicitation provision arising from the Agreement. Further, it found that the employer had demonstrated irreparable harm from the use of confidential information in the employee’s possession arising from his former employment.
As a result, the court ordered that the employee be prohibited or restrained from soliciting or contacting any of the employer’s employees, persons, firms, businesses, corporations or governmental agencies who were customers at any time during his employment with the employer. It further ordered that this restriction will continue for a period of two years from the date of his resignation and will encompass a region within 750 miles of Burlington, Ontario.
In addition, the court ordered that the employee cannot use, employ or disclose any confidential or proprietary information, customer lists, suppliers, pricing, production methods or trade secrets of the employer or any other private information.
Finally, the court ordered that the employee return to the employer all of the employer’s information and other confidential or private records or documents.
The Kitchener-Waterloo employment lawyers at Petker Campbell Postnikoff have many years of experience advising non-unionized employees and employers on a variety of workplace issues, including harassment and termination. Our team will walk you through the details of your dispute, advise you on your rights, responsibilities and obligations, and help you understand your options. If your dispute cannot be settled through negotiation, we can represent you through mediation and the court process.
We represent clients throughout southern Ontario, including the communities of Cambridge, Guelph, Elmira, Brantford, Fergus, Elora and the surrounding area. Call 519-886-1204 or contact us online for a consultation.