Non-Existent Non-Compete Agreement Cannot Be Enforced
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Written on behalf of Peter McSherry
Non-competition agreements are unique in employment law as it is an agreement between an employee and employer that states that if the employee voluntarily leaves their employment with the employer, then the employee is legally constrained from working for certain employers, in a particular industry, for a predetermined length of time. Such contracts are generally prohibited in Ontario, although they may apply to executive employees who have access to confidential business information and who could potentially use such information to harm the employer’s competitive position.
The purpose of non-competition clauses is to protect the interests of the employer and business, which is particularly important when the employer occupies a niche market in which expertise is limited and/or the company itself is relatively small. Where an employer suspects that a former employee has violated the non-competition clause of their employment contract, then it may seek an injunction to restrain the former employee from continuing to breach the non-competition agreement, or it may otherwise seek to enforce the clause through ascertainment of a breach of some kind (confidentiality or fiduciary duty, for example). Whether the employer is successful in such a claim, depends upon the terms of the agreement and the language included in the non-compete clause.
Two Supervisors Leave Employer and Work for Competitors
The case of Northwest Protection Services Ltd. v Wellington involved the plaintiff, Northwest Protection Services Ltd. (“Northwest”), a company that provides security services for retail and commercial properties and various live events. The defendants, “RW” and “RD”, began working for Northwest as security personnel in 1999 and 2001, respectively. Although each signed a pre-employment agreement, neither RW nor RD signed a written employment contract. Throughout their tenure with Northwest, RW and RD were each promoted, first to security supervisors and then, eventually, to senior security supervisors. As both RW and RW work for Northwest only part-time, each also held other jobs throughout their respective tenures with Northwest, including jobs with other security companies.
Shortly after the COVID-19 pandemic was declared in March of 2020, both RW and RW were laid off from their employment with Northwest. For a time, RW and RD both found work with other security companies, and eventually RW also conducted some work through his own private security company, Protocol7even (“P7”), which he incorporated in June of 2020 after having operated the company as a sole proprietorship for many years.
Employer Sues Former Employees
Following their departure, Northwest commenced a claim against RW and RD on a number of bases. Specifically, Northwest alleged that both RW and RD had engaged in breach of contract, breach of duty of care, breach of confidence and breach of fiduciary duty. Northwest further asserted that, as RW and RD had been constructive trustees of Northwest’s confidential information, which it was now abusing, thus claiming Northwest was entitled to special damages, in addition to aggravated and punitive damages.
Court Finds Neither Employee
The matter came before the Court dealt with each claim of Northwest in turn. First, the claim of a breach of fiduciary duty was dismissed on grounds that neither RD nor RW occupied a fiduciary position with Northwest. Despite having been bestowed the title “supervisor” or even “senior supervisor”, the evidence revealed that in fact neither employee carried out any meaningful managerial functions for Northwest. Furthermore, “they did not do any marketing or client development, and … they were not involved in administrative work with respect to the contracts. They did not assign guards to events, or price or co-ordinate dates for events. Their duties were primarily to oversee security at the events”. As such, neither had been a fiduciary of Northwest.
Moreover, neither employee had had access to any of Northwest’s confidential information during their respective tenures with the company. As such, they could not have breached any duty of confidentiality.
Employer’s Claims Dismissed by Court
As to the assertions that RW and RD had breached their contracts by wrongfully competing with Northwest and wrongfully recruiting others away from Northwest to work for RD and RW, the Court noted that, even if the employees had worked for competing security companies, “there was no prohibition on [them] doing so”, because neither party had signed a non-competition agreement with Northwest. Further, P7, the company owned by RW, was also not prohibited from competing directly with Northwest. RW had owned the company for many years, including while he had been actively employed by Northwest, and there had been occasions when RW had declined work on the basis that he had a competing obligation to work for P7. In these circumstances, his continuing to work for P7 following the end of his working relationship with Northwest, was permissible and not unreasonable. There was no evidence to suggest that either RW or RD had recruited any person to work for any other entity whatsoever, so Northwest’s allegations on this point amounted to pure conjecture.
Thus, Northwest’s claims were entirely unsuccessful. The Court further noted that, even if Northwest had been able to successfully prove any of its claims, it had provided no evidence of damage it had suffered as a result of these purported violations. As such, even if Northwestern had successfully proven a breach, it would not have been entitled to recover any damages.
Contact the Law Office of Peter McSherry for Your Employment Law Needs Today
The Law Office of Peter McSherry exclusively practices employment law and is proud to assist clients throughout Southern Ontario with their employment-related needs. Whether you require assistance with employment contract interpretation, advice on non-competition and non-solicitation covenants, or you want to better understand the concepts of wrongful and constructive terminations, we can help. Our knowledgeable employment law team, led by Peter A. McSherry, will work closely with you to understand your needs and help you resolve your employment law matter. Contact us today, either online or by telephone, at 519-821-5645, to schedule a confidential initial consultation.