Many employers fear that a departing employee will set up a competing business. Often employers try to protect themselves with non-competition and non-solicitation agreements with employees. In See Thru Window Cleaners Inc. v. Mahood (PDF) , the B.C. Supreme Court explored a novel issue – whether a non-competition clause is enforceable against a seasonal employee.
See Thru Window Cleaners Inc. was in the business of window cleaning, gutter cleaning, and pressure cleaning. Its business was seasonal. It employed most workers in the spring, summer and autumn months and then laid them off for the winter. One of those seasonal workers was the defendant, Mr. Mahood.
Mahood was hired in 2001 or 2002 as an entry-level window cleaner. He worked for See Thru on and off for 15 years. He was laid off each winter, only to be re-hired the following year. At times, Mr. Mahood would find other work while laid off. At other times he would collect employment insurance benefits.
This pattern was repeated throughout most of Mr. Mahood's employment.
In October 2008, Mahood became the crew foreman. He was then required to enter into a non-competition agreement.
In February 2009, Mahood left See Thru, but returned to their employ one year later. At that point, in early 2010, he signed another non-competition agreement. In it he agreed not to establish his own competing business within the City of Kamloops, for a period of three years after leaving his employment with See Thru.
After signing this second agreement, Mr. Mahood worked for See Thru on a seasonal basis until November 2015, as follows:
- February 18, 2010 to November 22, 2010;
- February 21, 2011 to November 11, 2011;
- April 30, 2012 to August 13, 2012;
- April 4, 2013 to December 12, 2013;
- March 24, 2014 to November 28, 2014; and
- March 9, 2015 to November 14, 2015.
On January 14, 2016, Mr. Mahood resigned. He started a business named Adam & Eaves Window and Gutter Cleaning. It competed directly against See Thru.
See Thru sought an injunction against Mr. Mahood that would prohibit him from competing against it for a period of three years from the end of his employment on January 14, 2016.
The Court's Decision
Mr. Mahood defended the action by saying that his employment with See Thru was terminated each year when he was laid off. The three year restriction he'd agreed to in 2010 therefore had expired well before January 2016.
To decide this issue, the court looked at the definitions of "temporary layoff" and "termination of employment" in the B.C. Employment Standards Act ("ESA"). Under that ESA, a layoff is not temporary and employment is terminated when an employee is laid off for more than 13 weeks in a period of 20 consecutive weeks, without right of recall.
The court found that Mahood's employment was terminated in November 2011 when he was laid off for more than 24 weeks. This was well in excess of the 13 weeks set out in the ESA. As a result, the 2010 non-competition agreement started to run in November 2011. The three year restriction expired in November 2014. That was well before Mahood set up his business. As a result, Mr. Mahood was free to operate it.
Lessons for Employers
Consider the applicable definition of "temporary layoff": The exact formulas will differ, but each Canadian jurisdiction has employment standards legislation that defines when an employee is temporarily laid off and when they are terminated. Employers seeking to impose post-employment restrictions should consider precisely when a termination occurs under the applicable legislation.
Non-competition clauses are rarely enforceable:We want to highlight the fact that courts are reluctant to enforce non-competition clauses against regular employees. The court in this case noted that the three year non-competition clause was likely overbroad and unenforceable in any event.
A better option that is more likely to be enforced by a court is a well worded, narrowly defined non-solicitation clause that will protect the existing clients of the employer. Each situation is likely to be decided based upon its own unique facts so we recommend seeking advice from an experienced employment lawyer.