THE EMPLOYERS' EDGE
Recent Ontario Superior Court of Justice decision Signals Revival of Restrictive Covenants in Employment Contracts: Mason v. Chem-Trend Limited Partnership
As many employers are aware, restrictive covenants are difficult to enforce in Canada. This is the case because the courts view it to be contrary to public policy as a “restraint of trade”. For this reason, restrictive covenants are considered to be presumptively unenforceable, unless the terms are unambiguous and reasonable. However, a recent decision by the Ontario Superior Court of Justice offers some hope to employers in upholding the terms of a restrictive covenant provided that the duration of the restrictive covenant is for a relatively short period of time.
In Mason v. Chem-Trend Limited Partnership, [2010] O.J. No. 3680, Tom Mason, a technical sales representative signed a restrictive covenant at the time of his hire in which he agreed, for a period of one year following his termination, not to engage in competitive business activities or to solicit business from any of Chem-Trend’s customers. After providing 17 years of service with the Company, he was dismissed from his employment. Following his dismissal, he brought an action for wrongful dismissal. Chem-Trend, a company with world wide operations and customers, counterclaimed seeking damages for the breach of the restrictive covenant.
In assessing whether the restrictive covenant should be upheld, the courts considered (a) the geographic scope of the covenant; (b) the activity restricted by the covenant and the time period of the restriction.
After reviewing these factors, the court found that the clause’s extensive geographic scope was warranted given the nature of Chem-Trend’s business, and the fact that Mason worked in the United States and Canada and within various regions throughout his career.
With respect to the covenant’s broad restrictions on Mason’s activities, the court concluded this was justified in light of the global nature of the business. In examining this issue, the court accepted Chem-Trend’s argument that as a technical sales representative, Mason had access to significant information about Chem-Trend’s products, operations, customers and pricing that could be used against Chem-Trend and be detrimental to its business. Further, the court took note of the fact that Mason had a presence in both Canada and the United States for 17 years and his technical knowledge of the industry made him a threat to Chem-Trend.
Most importantly, the court ultimately upheld the terms of the restrictive covenant on the basis that the duration of the covenant was for a relatively short duration, being for a period of one year. Although the court recognized the geographic scope of the clause was much broader than the norm, it found that this was counterbalanced by the fact that the covenant was only in place for one year.
While this decision does not mark a significant departure from previous case law, it does appear to signal that the court is prepared to enforce restrictive covenants even in circumstances where the scope of the restrictions are broader than those traditionally considered by the courts. However, a note of caution is warranted for employers: courts may only consider this where the duration of the restrictive covenant is for a short period of time.
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