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Bulletin | The HR Space

Freedom of competition prevails in the absence of restrictive covenants

Fasken
Reading Time 3 minute read
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Overview

Labour, Employment & Human Rights Bulletin | HR Space

To protect their legitimate interests in a competitive market, all Canadian employers should consider including restrictive covenants (such as non-competition and non-solicitation clauses) in the employment contracts of their key employees. Such clauses should be carefully drafted so they are considered reasonable and valid if challenged in court, as courts have been increasingly strict about issuing orders that prevent individuals from earning a living.

In a recent case, the Quebec Superior Court dismissed an application for interim injunction brought by a business against its former employee and his new employer.

The facts

The applicant is an IT business, and its former employee previously held the position of senior account manager. The former employee did not sign any non-competition or non-solicitation agreements. The applicant claimed that the former employee had access to confidential client information and to its suppliers' price list. The applicant asked the Court to order the former employee and his new employer to cease using confidential information and soliciting its customers. 

The Superior Court's analysis

In light of the above facts, the Court reiterated that injunctions are discretionary remedies that can only be granted to prevent evident, imminent and irreparable harm. Accordingly, the applicant needed to prove, among other things, (a) that the information allegedly used by the former employee was confidential; and (b) that this information was indeed used. 

The Court also noted that customers are not the property of anyone, including the people or businesses whose services they use. Therefore, out of respect for the principle of freedom of competition, and especially in the absence of a non-solicitation clause or proof of bad faith or anti-competitive conduct, a former employer cannot generally prevent a former employee from contacting customers he knows for the purpose of offering his services or inviting them to retain his services.

The Court also stated that the fact that the former employee provided his new contact information to former contacts does not fall outside the scope of freedom of competition in this case. Thus, the applicant having failed to establish the existence of serious or irreparable harm, the balance of inconvenience favoured the respondents, namely, the former employee and his new employer.

Comments and best practices

A different decision may have been reached by the Court if the employee had stolen confidential client/price lists, was a fiduciary of their former employer, or had been subject to restrictive covenant in an employment or commercial agreement. In the absence of those facts, freedom of competition prevailed in this case. The mere fact that the former employee provided his new professional contact information to former contacts does not fall outside the scope of freedom of competition. 

To protect their legitimate interests, employers should perform an analysis of their employees' duties to determine which ones should be subject to non-competition and non-solicitation clauses during and after their employment. This is a best practice that will help employers manage risks associated with key employees leaving for a direct competitor. It also protects employers against the effects of staff volatility and its repercussions on their operations, especially in a labour market characterized by relatively frequent turnover.

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