The Ontario Court of Appeal recently rendered an interesting judgment regarding non-compete clauses in Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344. The case pertains to the termination of Mr. Tom Mason (Mason), an employee with Chem-Trend Limited Partnership (Chem-Trend) for 17 years. Mason was a technical salesperson for the company, which manufactured and sold industrial chemicals worldwide. Throughout his career at Chem-Trend, Mason was responsible for several sales territories across Canada and the US.
Upon being hired, Mason signed a contract containing a non-compete clause which was automatically triggered upon termination of his employment. According to this clause, Mason was prohibited from engaging in any business or activity that could be deemed in competition with Chem-Trend for a period of one year following the end of his time with the company, regardless of whether he had been fired or quit of his own volition. This prohibition included providing services or products to any business entity that was a client of Chem-Trend during the course of his employment. Following his termination, Mason presented an application to the Court seeking to declare the non-compete clause unenforceable. The Trial Judge rejected the application, declaring the clause valid and applicable. Mason appealed to the Ontario Court of Appeal, which rendered its judgment on May 3, 2011.
Common law jurisprudence surrounding the applicability of non-compete clauses essentially follows the same criteria as those of article 2089 of the Civil Code of Quebec. Their validity will be determined according to geographic scope, duration, and extent of prohibited activities. The ambiguity of their wording and the need to protect sensitive information regarding the employer will also be considered by the courts.
In its analysis in the Mason case, the Ontario Court of Appeal adopted the view that the Trial Judge erred in his determination that the complete prohibition of the non-compete clause was reasonable.
First, the Court of Appeal noted that another clause existed in the contract which prevented Mason from disclosing Chem-Trend’s confidential information. Next, the Court of Appeal noted that the non-compete clause prevented Mason from doing business with all entities that had been clients with Chem-Trend throughout the duration of his 17 years of employment. Such a harsh restriction was difficult to reconcile with the relative brevity of the prohibition (one year). Moreover, as Mason had neither access to a list of all current and past clients of Chem-Trend, nor knowledge of the names contained therein, it was impossible for him to assess whether a potential client was off-limits. Finally, the scope of the prohibited activities was deemed too broad. Mason was not a senior manager of the company, but a mere salesman. Preventing him from engaging in all activities, rather than mere solicitation, with clients of the organization was deemed unfair. Consequently, the Court of Appeal found the non-compete clause to be unreasonable and therefore unenforceable.
The Mason decision exemplifies how the Court of Appeal of Ontario balanced the different factors that are to be taken into account when determining the applicability of a non-compete clause in an employment contract. From this case it becomes apparent that, despite the short duration of the restrictions, the geographical scope and broad range of prohibited activities were such that the clause exceeded the employer’s legitimate right to protect the company’s sensitive information and to guard against unfair competition from an experienced employee. Though rendered in a common law jurisdiction, this case illustrates how principles similar to those applicable under the Civil Code of Quebec are applied elsewhere in Canada, and constitutes an interesting example of how courts deal with non-compete clauses in employment contracts.
In collaboration with Gabriel Demers-Brodeur, articling student at Norton Rose OR LLP.