Working in sales is a competitive job, and following a leave or termination, an employee may face obstacles entering into the same industry again. Some employment contracts may include a non-compete clause, but in other situations, a contract might allow the employee to purchase their book of business. If an employee finds themself in the latter category, it stands to reason that they would place great value on taking advantage of such a clause.
In a recent decision from the Court of Appeal for Ontario, the Court was required to determine whether an employer breached the employment contract terms concerning an employee’s ability to purchase their book of business from the employer.
In the case of Lindsay v. Verge Insurance Brokers Ltd., the employee, who was the respondent in the appeal, began working for the appellant employer in 2004 as an insurance producer. The employer sold both personal and commercial insurance products.
The parties had an employment agreement that governed many aspects of their relationship, including terms that spoke to the employee’s ability to purchase his book of business if he left the employer’s company.
After nine years of employment, the employee had built a successful career and earned commissions that provided him with an annual income of $181,000. However, by 2012, the employment relationship between the parties was deteriorating.
On April 15, 2013, the employee provided his employer with 60 days written notice that he intended to resign, effective June 14, 2013. In that same letter, he told the employer he wanted to purchase his book of business for the contracted price of 200% of his annual commissions. The employer accepted the employee’s right to do so, though added that he could not purchase accounts considered of “particular importance.”
The parties began to discuss the purchase, and both parties hired legal counsel on May 6, 2013, to begin negotiations.
The particular terms of the employment contract stated that:
“(ii) The right to purchase as provided in paragraph 5.02(i) above shall be subject to the following conditions and limitations:
(e) within sixty (60) days following receipt of the Producer’s notice to purchase as referred to above, the Company shall notify the Producer in writing as to the accounts to be sold to the Producer together with the purchase price for any such account as provided for in paragraph 5.02(i) above. The Producer is obligated to purchase all of the accounts identified by the Company. The purchase price shall be paid in full by the Producer to the Company within fourteen (14) days thereafter, failing which the Producer is deemed to have waived or relinquished any right to purchase as provided for herein.”
The Court noted that negotiations between the parties did not go well. The employer finally provided a client list on May 14, 2013, approximately one month after the employee requested it. However, the provided list did not include clients’ names or policy numbers, which the employee claimed made it difficult for him to determine the list’s accuracy. On that same day, the employer indicated that the purchase price of the list was set at $481,167.
Three days later, the employee’s lawyer advised the employer that their client could not vet the list and that the 14-day period in which the employee could decide whether or not to agree to the purchase could not begin until he was able to determine its accuracy.
The parties continued their discussions until June 5, 2013. They worked through corrections provided by the employee, and the price was eventually dropped to $362,977. The final communication from the employer arrived on June 5, stating that they insisted on closing by 5:00pm the same day.
The employee said he was not prepared to act so quickly and needed time to review the latest version of the list. This led to the employee commencing an action alleging that the employer breached the terms of the contract, while the employer made a counter-claim that the employee had “improperly refused to buy his book of business.”
At trial, the judge found that the employer had breached the contract when it refused to allow the employee to close the purchase within 14 days after he was provided with a price and final list of accounts. Instead, the employer demanded the employee close the purchase that same day.
The employer appealed the trial judge’s decision on the grounds that they misinterpreted and changed the terms of the contract.
On appeal, the Court failed to see how the trial judge’s analysis was not a reasonable interpretation of the terms. The Court reiterated that the employee was entitled to a 14-day period once an “accurate list and price” were in place. Therefore, the parties’ negotiations in the weeks leading up to June 5 were not part of the 14 days because the price and list details changed during that time.
The Court dismissed the employer’s appeal and found that the employee lost profits from the employer’s conduct, equating to $181,500 in damages.
Peter A. McSherry Employment Lawyer in Guelph Can Help You Understand and Enforce the Terms of Your Employment Agreement
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