Employee Successful in Bid for Service Contract with Employer’s Client

Written on behalf of Peter McSherry
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As discussed in a previous blog post, disputes can arise when an employee who provides services for their employer leaves the company and attempts to maintain their client relationships in their own business or under a new employer. In many cases, the obligations owed by an employee to an employer, and vice versa, can be found in the employment contract, which may include non-solicitation or non-compete clauses.

A recent decision from the Ontario Superior Court of Justice illustrates the importance of having a thorough understanding of a contract, and how the terms of the agreement should influence the parties’ behaviour and conduct once an employment relationship comes to an end.

Physiotherapist provides services to long-term care homes

In Arvan Rehab Group Inc. v. Millea et al., the plaintiff’s employer provided physiotherapy services to several long-term care facilities in Ontario, including the “Norview” facility. The employer allowed workers to provide services as either an employee under the company or as an independent contractor. If a worker provided services as an independent contractor, they would also be able to provide services to other service providers as well.

In this matter, the defendant worker provided physiotherapy services for the employer from 2004 until 2014. The employer contracted with “MPPC” (the worker’s professional corporation) to provide physiotherapy services. From 2004 to 2007, the worker personally provided physiotherapy services to the employer and was the employer’s primary contact for one of the employer’s clients. The 2004 contract stated that the worker (or his company, MPPC) could not provide physiotherapy services to two of the employer’s clients, including Norview, for one year following the termination of the contract unless the employer no longer held a contract to provide services to those clients.

Throughout the years that the worker provided services to the employer, he also provided physiotherapy services to other clients. However, these clients did not compete with the employer who provided services exclusively to long-term care homes.

Employee was primary contact at particular facility

In 2007, the Ontario Government required that physiotherapists contract directly with providers and not through professional corporations; therefore, the employer amended its contracts accordingly. A new contract was signed between the employer and the worker in his personal capacity, which meant that the worker became an employee of the employer and no longer operated as an independent contractor. The employer claimed that they complied with the workers’ request that any money owed under the contract be paid to MPPC. The worker indicated that he overlooked the fact that the contract was between the employer and him personally.

The employer told the Court that all of their dealings with MPPC were with the worker himself, who the employer considered to be their key person onsite at Norview. This allowed the employee to build close relationships with the staff at Norview, and over the years, these relationships expanded beyond a simple physiotherapist-patient relationship. For example, he attended a retirement party for one of Norview’s staff members.

When the 2007 contract was revised, it contained non-solicitation provisions which stated that:

“(vi) I agree that I will not, without prior written consent of (the employer), during my contract assignment with (the employer) and for a period of twelve months after the date of the termination of my contract for whatever reason:

a. Directly or indirectly solicit, interfere with or endeavour to direct or entice away from (the employer) any client or prospective client that I have dealt with while associated with (the employer) for the purpose of offering that client services which are the same as or similar to any services offered by (the employer); or

b. Directly or indirectly interfere with, hire, entice away or otherwise engage the services of any Professional or other service provider of (the employer) who was at any time during the 12 months prior to my termination of contract associated with or provided services to (the employer).”

The employer explained that this clause was important due to the relationship the employees had with their own clients.

Physiotherapist decides to strike out on his own

In April 2013, funding changes were enacted by the Government of Ontario, which included a 50% reduction in the budget for physiotherapy at long-term care facilities. In addition, a change to billing saw the government move away from OHIP licenses, which required an additional amendment to the contracts between physiotherapy providers and long-term care centres.

Despite other physiotherapists contracting with long-term care facilities directly for employment, the employee told the employer that he planned to continue working for them. However, Norview later released a request for proposals, which allowed the employer, and others, to put forward sales pitches to get the facility’s business. The employee decided to submit a proposal for his own company, MPPC, and succeeded. As a result, the employer lost their contract with Norview and claimed that the employee breached the 2007 contract.

Did the employee breach his employment contract?

The employee took the position that neither he nor MPPC were subject to a non-competition or non-solicitation clause. In support of this argument, the employee claimed that the employer did not give notice of the 2004 contract termination, and once the employer lost the Norview contract during the request for proposals, the non-solicitation clauses became “null and void.” However, the Court disagreed with this argument, finding that the 2007 contract replaced the 2004 contract. Further, the Court did not accept the employee’s claim that he did not know that he had personally contracted with the employer, given that his name was referenced throughout the contract and he was “an articulate and intelligent individual.”

The Court did find that the employee had breached his fiduciary duty to the employer as “a key employee can attract fiduciary duties despite not being an officer, executive, or member of management.” However, it was noted that other physiotherapists signed contracts with the employer containing similar wording, and this would not normally result in a fiduciary duty to the employer.

Court finds employee breached fiduciary duty owed to employer

The defendant was required to personally provide physiotherapy services unless he was on vacation or ill, in which case the employer was required to approve his replacements. Further, he was the face of the employer at Norview, and it was his responsibility to ensure that the contractual obligations of the employer were fulfilled at Norview. He also participated in committees and meetings at Norview more than anyone at the employer’s head office, which allowed him to gain knowledge of the needs and preferences of Norview and its residents.

Given that the employee was essential to the employer’s business at Norview, the Court found that the employer was “particularly vulnerable to competition from him.” Based on this finding, the Court held that the employee owed the employer a fiduciary duty not to compete during the request for proposals, and he breached that duty when he submitted a bid while he was still working for the employer at Norview.

As a result, the Court held that the employer was entitled to disgorgement damages based on MPPC’s actual billings.

Contact Peter A. McSherry, Employment Lawyer in Guelph, for Advice on Non-Solicitation Clauses and Worker Classification Disputes

Employees might not always be aware of the extent of obligations they have under an employment contract, so it is critical to ensure that you fully understand your obligations to an employer before entering into an employment contract or confidentiality agreement. The responsibilities and rights set out in an employment contract will become vital in the event of a dispute between the parties and in determining an appropriate resolution. The experienced employment law team Peter A. McSherry helps employees review and understand their obligations and entitlements under a proposed employment contract and can help employees understand their worker classification to ensure that they do not act contrary to an employment agreement. We provide employees with advice, resources, and knowledge to ensure that they are equipped to obtain the best possible outcome in the event of a dispute or termination. To speak with a member of our employment law team regarding your questions, contact us by phone at 519-821-5465 or online.