Sometimes Less is More
In a fairly recent decision, the Ontario Superior Court of Justice found in favour of the defendants on summary judgement, dismissing an action by the plaintiff-employer for alleged breach of a non-competition clause.
This case involved a travel agent, Ms. Mary Murphy, who resigned from her employment with Donaldson Travel and Uniglobe Donaldson Travel (hereinafter the “plaintiffs”), and subsequently secured employment with Goligor’s TravelPlus (“Goligor’s”). After Ms. Murphy began working at Goligor’s, the plaintiffs lost four clients to Goligor’s. As a result, the plaintiffs alleged that Ms. Murphy poached these clients in violation of a non-competition clause contained in her employment agreement with the plaintiffs. The plaintiffs sued both Ms. Murphy and Goligor’s for breach of the employment agreement, misappropriation of confidential information and intentional interference with contractual relations. Both Ms. Murphy and Goligor’s brought a motion for summary judgment dismissing the actions as against them, respectively.
The Court found the non-competition clause to be unenforceable because it was unreasonable in the circumstances. The clause at issue read:
“Mary agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by Uniglobe Donaldson Travel, directly or indirectly.”
When determining whether or not a restrictive covenant is reasonable, courts must consider the following factors:
- did the employer have a proprietary interest entitled to protection?
- are the temporal or spatial features of the covenant too broad?
- is the covenant unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer?
The Court reasoned that the wording of the restrictive covenant suggested that it was more akin to a non-competition clause rather than a non-solicitation clause. Generally, non-compete clauses attract a higher level of scrutiny by courts because they place a greater restraint on trade and interfere with free and open market competition. The Court found that in this case, the plaintiff could have sufficiently protected their business interests with a non-solicitation clause. Further, the clause as it stood provided for no temporal or spatial limits on Ms. Murphy’s restraint on trade. As such, the Court found the clause to be overly broad and therefore unenforceable.
Sometimes, less is more. This rings particularly true when drafting restrictive covenants in the employment context. It’s important to remember that when a restrictive covenant is overly broad, it will be struck down by the court in its entirety, rather than “read-down” to make it enforceable. As a result, if you have the option, it’s usually better to err on the side of caution and draft restrictive covenants that may be slightly less restrictive than an employer may want, so as to decrease the likelihood that it may be struck down.
Donaldson Travel Inc. v Murphy et al, 2016 ONSC
The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.