Tag Archives: employment litigation

The Latest on Non-Competition Covenants

Posted on by
Reply

On December 2, 2021, the Working for Workers Act, 2021, came into force. The Act prohibits non-competition clauses in employment or other agreements except in the context of a sale of the business, or if the employee operates at an executive level. The effective date of the Act is October 25, 2021. The Court has held that it does not apply to agreements entered into prior to that date.

Non-competition clauses have always been fertile ground for litigation simply because many employers consider them vital to their business. But, they are also very difficult to enforce. At the end of the day, at common law, the enforceability of such clauses depends on whether or not a court considers them reasonable. For that reason, it is important for both employers and employees to give careful thought to how a Court will make that determination when negotiating the terms of a non-competition clause.

In the recent case of M & P Drug Mart Inc. v. Norton and Whitehead Pharmacy Ltd., the Ontario Court of Appeal took the opportunity to review this process.

Norton, a pharmacist, had been the pharmacy manager of a pharmacy owned by M & P in Huntsville, Ontario. His employment agreement contained a non-competition covenant. The clause in issue provided that for one year after the termination of Norton’s employment for any reason, he would not “carry on, or be engaged in, concerned with, or interested in, directly or indirectly, any undertaking involving any business the same as, similar to, or competitive with the business within the 15 km radius of the business located at 10 Main Street East, Huntsville, Ontario”.

The agreement also provided an acknowledgement on Norton’s part that the clause was necessary to protect M & P’s legitimate business interests and was reasonable in the circumstances.

Norton resigned and became an employee at a pharmacy less than 3 km away.

M & P sued Norton and the matter was determined by Application. The Application judge found the covenant to be unreasonable and therefore unenforceable. The Application was dismissed. The decision was appealed to the Court of Appeal, which dismissed the appeal.

The Court of Appeal began its analysis by observing that, as a general rule and on public policy grounds, a non-competition clause is unenforceable unless it is reasonable considering the interests of the parties and the public based on the circumstances at the time that the covenant is made. In order to determine whether the clause is reasonable, the Court will consider the extent of the activity to be prohibited, the geographic coverage of the restriction, and its duration. The covenant must be clear as to activity, time and geography. If it is ambiguous on any of these factors, it is likely to be considered unenforceable simply because the ambiguity will make it impossible to show that it is reasonable.

If the covenant is clear and unambiguous, it will then be assessed for reasonableness. The Court will not rewrite the covenant in accordance with what it thinks is reasonable. If it is unreasonable, the Court will simply decline to enforce it.

In this case, M & P argued that the clause merely restricted Norton from working as a pharmacist for a pharmacy or a store that includes a pharmacy. However, the words contained in the clause went well beyond this restriction. In the view of the Court, the covenant would have prohibited Norton from working in a job at a supermarket, for example, that included a pharmacy department, even if his job was in a completely different department and he was not employed as a pharmacist. Furthermore, Norton would have been prevented by the clause from being a passive investor in any such business.

As it happens, Norton did become re-employed as a pharmacist. Nevertheless, as the clause included activities beyond working as a pharmacist, it was considered overly broad and, therefore, unenforceable.

The jurisprudence is filled with cases in which a non-competition clause was found to be unenforceable. This is because historically, employers have insisted on protections well beyond what is truly necessary, thinking that inclusion of an acknowledgment by the employee that the employer’s concerns are reasonable will preserve the clause.

While the number of such cases will start to decrease given the new legislation, the vast majority of contracts existing today that include such clauses will not be subject to the legislation. They will continue to be litigated, and Courts will continue to be vigilant in protecting the ability of employees to make a living elsewhere unless the clause restricting the new employment is eminently reasonable.

Even with the new legislation, the common law will apply to “executive” employees. In addition, this issue will arise in the context of the sale of businesses. In the latter cases, while the attitude of the Court has always been more generous to parties seeking to enforce non-competition covenants, the issue of reasonability will continue to be one to which attention must be paid.

When Can an Employment Agreement be Voided for Duress?

Posted on by
Reply

The recent decision of the Ontario Superior Court in Riskie v. Sony of Canada Ltd. provides a useful reminder of the way in which the court will deal with an employment agreement where the employee later complains that he executed the agreement under duress.

In this case, Mr. Riskie was a management level employee of Sony of Canada Ltd. based in Toronto. He began working at Sony in 1989 without a written employment agreement. He lived and worked in Toronto.

In the spring of 2014, after having worked at Sony for about 25 years, he announced that his wife had obtained new employment and that he and his family were planning to move to Ottawa. He asked whether he could continue in his existing job from his home in Ottawa notwithstanding that there were a number of Toronto-based employees reporting to him.

While Mr. Riskie’s immediate superior was supportive, Sony’s President and CEO was opposed to the idea.

Mr. Riskie planned to move to Ottawa in mid-June 2014, even though he knew of senior management’s opposition to the idea of his continuing to work from there. Several days before the move, his immediate superior advised him that Sony would consider accommodating his request but would require that his position change from that of an indefinite employee to a contract employee with a fixed term, as a condition of approving the arrangement.

Mr. Riskie was given a proposed contract with a fixed term ending December 31, 2014, with no renewal rights. He was able to negotiate the end date to March 31, 2015. He asked for a right to renew the contract unless he failed to prove that the new arrangement could work, but that request was denied. Ultimately, he signed the contract after he had already moved to Ottawa. At no time was he ever told that he could not remain in Toronto and continue in the same capacity as before by, for example, commuting to Ottawa on weekends.

Mr. Riskie proceeded to carry on his previous duties remotely from Ottawa. Several months later, Sony announced internally that its North American operations were being reorganized. A number of people were let go in February 2015 and at that time, Mr. Riskie was told that his contract would not be renewed on its expiration date.

At that date, he was provided with all of the benefits called for under his fixed term employment agreement. Mr. Riskie responded by suing Sony for wrongful dismissal, saying that the employment agreement was void for a variety of reasons. One of his arguments was that he signed it under duress. Sony insisted that the agreement was valid and Mr. Riskie brought a motion for summary judgment.

At the motion, Mr. Riskie argued that he had been required to sign the contract “in order to continue the teleworking arrangement from Ottawa” even though he had already moved before actually signing the contract. On cross-examination, he admitted that had had the option of signing the contract and accepting its terms, resigning and looking for alternative employment, or returning to Toronto on a full-time basis. He admitted that he preferred to sign the contract and make every effort to demonstrate its value to Sony so as to convince Sony to extend it.

The court pointed out that there is a five-part list of criteria to determine whether or not an employment agreement was executed under duress.

Firstly, the court will consider whether the party protested at the time that the contract was entered into. In this case, the court found that while Mr. Riskie had protested numerous aspects of the proposed deal, he never protested that he was being placed under duress at the time that he actually signed it. He acknowledged that he had been given several weeks to think it over and the court concluded that this was not consistent with coercion or duress.

Secondly, the court will consider whether there is an effective alternative course open to the party alleging duress. In this case, Mr. Riskie certainly had the alternative of staying in Toronto and commuting frequently but he declined to select it.

Thirdly, the court will consider whether the party received independent legal advice. The court concluded that as a highly paid senior executive, Mr. Riskie could have sought such advice if he had chosen to do so. There was no time pressure applied to him to preclude him from seeking advice and he had the means, the time and the opportunity to do so.

Fourthly, the court will consider whether, after entering into the contract, the party took any steps to get out of it. In this case, no such steps were taken and there was no suggestion that Mr. Riskie did anything other than to perform his duties to the best of his ability.

Finally, the court will consider whether the party was placed under any illegitimate pressure. In this case, the court found that Mr. Riskie could have simply resumed his duties full time in Toronto had he chosen to do so. While his reasons could be readily understood, not having a preferred option available is not a test for duress. There must be an illegitimate application of coercive pressure in order to void a contract for duress. In this case, Sony had no obligation to accommodate the move to Ottawa and every right to propose terms on which it might do so. There was nothing wrong in Sony attaching conditions to its willingness to accommodate Mr. Riskie’s request.

As a result, there was no basis for concluding that the employment agreement was entered into under duress.

After disposing of Mr. Riskie’s other arguments, the motion for summary judgment was dismissed.

With increasing frequency, companies with employees of indefinite duration are turning to written employment contracts with those employees and asking them to execute them during the course of their employment. There a number of rules that have been established by the jurisprudence that must be followed for those contracts to be enforceable. This case provides useful clarification as to the circumstances under which such an agreement may be set aside for duress.

Termination Provisions in Employment Contracts Are Not Always Enforceable

Posted on by
Reply

The recent decision in Miller v. A.B.M. Canada Inc. provides a useful lesson on the extent to which one can rely on the termination provisions in an employment contract.

In this case, Mr. Miller joined ABM in 2009. He was given a draft employment contract with no deadline for him to sign it. It was set up with a series of appropriate headings and a plain language description of the terms appropriate to each heading. It contained a clause entitled “Termination” and at trial, Mr. Miller testified that he saw the heading and knew what it meant but did not read the terms set out under it.

The contract provided for a salary and in addition, ABM agreed to match Mr. Miller’s personal pension contributions up to a maximum of six percent of base salary. Mr. Miller was also to be provided with a monthly car allowance. These additional items appeared under the headings “Remuneration” and “Fringe Benefits” respectively.

Under “Termination”, the contract provided that Mr. Miller’s employment could be terminated without cause “upon being given the minimum period of notice prescribed by applicable legislation, or by being paid salary in lieu of such notice or as may otherwise be required by the applicable legislation”.

Mr. Miller began work in September 2009. His employment was terminated in January 2011. At that point, ABM provided Mr. Miller with two weeks of salary in lieu of notice, being salary in lieu of the minimum period of notice prescribed by Ontario’s legislation. He ultimately received a pay cheque for the two weeks’ salary plus vacation pay. The cheque did not include anything for his car allowance component or pension contributions.

Mr. Miller sued for damages, taking the position that the termination provision was null and void so that his entitlement should be determined on the basis of the common law. ABM’s position was that its obligations were limited to payment of salary under the contract, which payment was made. ABM acknowledged that Mr. Miller might be entitled to the pension contribution of six percent of base salary for two weeks plus a car allowance for two weeks, but nothing more.

The court observed that employees under a contract of employment for an indefinite period are entitled to reasonable notice of termination. This is to be treated as a presumption, rebutted only if there is a contract clearly specifying another period of notice and that other period is not inconsistent with legislated minimums.

The court felt that a termination provision specifying a minimum period of notice would be effective to rebut the common law presumption if the period is not contrary to the minimum provided by the legislation. However, the court observed that the length of the notice period is only part of the termination equation. One aspect is the length of time during which the employee is to be paid in lieu of notice. The amount to be paid to the employee during that period is a separate issue.

The law is clear that any provisions that attempt to contract out of minimum employment standards by providing for lesser benefits than those legislated as minimums, are null and void.

In this case, the termination clause provided that Mr. Miller’s employment could be terminated upon being paid salary in lieu of the minimum period of notice prescribed by the legislation. Mr. Miller, however, was also entitled to additional amounts for pension contributions and car allowance as part of his remuneration package.

The court found that the termination clause actually provided for compensation in an amount that was less than required by the legislation. The minimum employment standards legislation includes benefits. Salary, as defined in the contract and specified in the termination clause, did not.

As a result, the termination clause failed to comply with the provisions of the legislation. For that reason, it was null and void and incapable of rebutting the common law presumption that Mr. Miller would be entitled to reasonable notice under common law principles. The court went on to award damages equivalent to 2.5 months of base salary together with additional amounts for benefits.

It is easy to criticize this decision for being overly technical. One would have to assume that if the person at ABM who prepared that contract had been properly advised, the word “salary” in the termination clause would have been changed to take into account the entire remuneration package being provided to Mr. Miller. The additional amounts in issue were quite trivial. Nevertheless, as technical as this approach may appear, this is a reflection of the way courts interpret employment agreements. Generally speaking, employees tend to be given the benefit of any doubt. This case is yet another illustration of the care that has to be taken in drafting employment contracts and particularly their termination provisions.

The Latest on Termination of Employment for Insubordination

Posted on by
Reply

The recent case of Smith v. Diversity Technologies Corporation provides some interesting insights into several employment law issues and principally that of termination for insubordination.

Mr. Smith was a sales manager for the defendant Diversity Technologies Corporation (“Diversity”). He had a record of being an exemplary employee. He had been employed by a company called Drillwell for 16 years before it was sold to Diversity and he worked at Diversity another four years until he was fired on October 14, 2011.

Diversity alleged that Smith had been terminated for just cause for insubordination. Smith had been the primary contact for a particular client which, by September 2011, owed Diversity about $100,000. At that point, Smith’s immediate superior instructed him to make sales to that customer in future only if they were paid for immediately by cash or credit card. Subsequently, his superior told him that no sales should be made to that customer at all because Diversity was going to be suing the customer to recover the debt.

Nevertheless, Mr. Smith did take an order from the customer of just over $1,000 without telling his superior. He accepted a cheque from the customer to pay for the order.

When this behavior was discovered by Diversity, Smith was fired.

Smith had entered into an employment contract providing for termination by the employer upon payment of one year’s salary which in this case was $100,000. In fact, Smith obtained comparable employment within a matter of weeks and the Court found that he had suffered no loss.

Not surprisingly, Smith put forward a different version of events relating to his instructions concerning that customer. He denied that he had willfully disobeyed his employer or that he had been insubordinate in any way.

Smith made a claim for the $100,000 severance payment and moved for summary judgment. Diversity insisted that Smith had been fired for cause and at worst, it was entitled to a trial to decide the case.

The motions judge had no difficulty dealing with the matter without requiring a trial. The judge considered that even though the versions of the story told by both sides were different, he was in an excellent position to rule on the matter even accepting Diversity’s version of the events, given the law relating to termination for insubordination.

On the facts of cases in which insubordination was held to constitute just cause for immediate termination, the Court noted that employers have the right to determine how business is to be conducted and employees are obliged to follow those instructions. Where an employee fails to follow lawful orders of his employer, he will be found to have disregarded an essential condition of his employment and this constitutes cause for immediate termination.

However, as this case demonstrates, the issue is not necessarily quite so clear cut. In this case, the Court considered that prior to the incident in question, Smith’s conduct as an employee had been beyond reproach. The amount in issue was trifling, particularly in comparison to the amount of the customer’s outstanding account. Because it was paid for immediately, the additional order did not increase the debt. Given Smith’s length of service and impeccable record, Diversity should have met with Smith, pointed out that his actions were in violation of the new company policy relating to this customer, and provided him with a properly-documented written warning. In proper context, his actions could not be considered as amounting to willful disobedience or insubordination.

The Court concluded by indicating that even if Smith’s conduct could be described as insubordinate, “it was not of a magnitude sufficient to justify termination.” Had Smith continued this behavior, Diversity would have had grounds for termination but in this case, its actions in terminating Smith’s employment were not justified.

On the question of damages, it was clear that Smith had mitigated his damages completely. However, given the terms of his employment agreement, Diversity was ordered to pay Smith $100,000 representing the amount payable under the employment contract.

This case demonstrates that before an employer terminates an employee without notice for insubordination, the employer must consider the context of the insubordinate act. An employer cannot simply seize on one instance of an act which might be considered insubordinate in some technical way to justify terminating the employment of an employee of long standing who has an otherwise unblemished record.

The Latest on Employment Contracts that Require Employees to Give Notice of Termination

Posted on by
Reply

The recent case of BlackBerry Limited v Marineau-Mes provides a useful insight into the often murky area of the obligations of an employee to provide notice of his intention to resign.

In this case, the employee was a Senior Vice President of BlackBerry Limited.

In the fall of 2013, he accepted a promotion to Executive Vice President in charge of about 3,000 employees. He signed an employment contract for his new position.

Among other things, the contract provided that he could resign at any time on six months’ prior written notice. The contract provided that during the notice period, he would continue to provide active service to the extent required by BlackBerry.

By the time he signed the contract in October 2013, he had already begun discussions with Apple Inc. about a new job. About a month after signing the contract, he had some discussions with BlackBerry’s newly appointed Chief Executive Officer which he did not find satisfactory, because the discussions included the notion that his role might ultimately be narrower in scope than originally contemplated.

One month later, in December 2013, Apple offered him a senior management position and he gave BlackBerry written notice of his resignation. He advised BlackBerry that he intended to join Apple in California in about two months.

This led to a dispute as to whether or not he was obliged to provide BlackBerry with six months’ notice of his resignation as required by the contract, thereby making himself available to assist with his transition out of the company for that period of time. BlackBerry brought an Application to the Court for an Order to that effect. The employee took the position that the contract was not valid and enforceable.

There is an abundance of case law around the question of reasonable notice of termination when an employer makes the decision to fire an employee. There is much less case law relating to the extent to which employees are obliged to give reasonable notice of resignation. That may be why BlackBerry insisted on a specific contractual term requiring six months’ notice in the event that this senior employee wished to resign.

The problem is that these concepts are not simply the opposite sides of the same coin. It is generally open to an employer that does not wish the terminated employee to actually work through his notice period, to provide the terminated employee with pay in lieu of reasonable notice. On the other hand, where the employee is resigning, the employer may well need the employee to continue to work through the notice period, or to at least make himself available so that there can be an orderly transition of that employee’s duties to a replacement. A payment of money by the resigning employee to the employer to take the place of that notice period simply won’t address the problem that the employer may be facing, particularly where the resigning employee is a member of senior management or has other specific knowledge or training that the replacement employee will not have.

In this case, the employee argued firstly that even if the contract was valid, he was free to leave during the notice period and BlackBerry’s remedy was an action for damages if any. The Court had no difficulty rejecting that argument.

The employee raised a number of other minor arguments but the other major point he tried to make was that the six month notice period was the equivalent of a non-competition covenant which was unreasonable and therefore unenforceable.

The Court did not accept that submission either. The Court found BlackBerry’s argument that it was necessary to have the employee available, and that the notice period was one of the tools allowing it to achieve that end, to be quite reasonable. Furthermore, given that the employee knew all along that he was expected to remain available to perform duties to BlackBerry during the notice period, and that these services would be necessary for his transition out of the company, the Court rejected the argument that the notice period was the equivalent of a non-competition clause. Finally and in any event, the Court observed that while the notice period did have some aspects of a non-competition agreement, it is the law in Ontario that reasonable competition clauses are enforceable. The Court found this clause to be eminently reasonable.

In the result, the Court found that BlackBerry was entitled to a declaration that the contract was binding and that the employee was required to provide six months’ prior written notice of resignation.

In my experience, employees sometimes seem to think that if they choose to resign, they will be able to do so without any particular regard for their obligation to provide reasonable notice. That may be true for some. However, where an employer is careful enough to require a specific notice period in an employment agreement, this case is a reminder that employees signing such employment agreements must take those clauses seriously.

Furthermore, for those perspective employers interested in hiring senior employees, it may well be prudent to question the perspective recruit as to any obligation that individual may have to provide reasonable notice of resignation to his or her former employer.