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Employment - Restraint of Trade. EF Institute for Cultural Exchange Limited v. WorldStrides Canada
In EF Institute for Cultural Exchange Limited v. WorldStrides Canada (Ont CA, 2023) the Court of Appeal considered a non-competition issue:[18] Further, the motion judge, at para. 27, cited Guzzo v. Randazzo, 2015 ONSC 6936 for the proposition that meeting with a prospective future employer that is a competitor is not, on its own, a breach of fiduciary duties. .... . M & P Drug Mart Inc. v. Norton
In M & P Drug Mart Inc. v. Norton (Ont CA, 2022) the Court of Appeal considered the law of restraint of trade in the employment context, also noting the new Ontario Working for Workers Act, 2021 which limits the doctrine (even further than it was before under the common law):[32] The general rule is that, on public policy grounds, a provision in a contract that restrains a vendor of a business from competing with the purchaser, or an employee upon leaving employment from competing with the employer, is prima facie unenforceable. The exception to the general rule is that the provision will be upheld if it is reasonable in reference to the interests of the parties and the public, judged in light of the circumstances at the time the covenant is made: Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157, at paras. 15-17; Martin, at paras. 49, 54.
[33] In order to determine whether a non-competition agreement is reasonable, the extent of the activity sought to be prohibited, the geographic coverage of the restriction, and its duration are all relevant: Shafron, at para. 26.
[34] Although the factors considered are the same, the reasonableness of a restriction is scrutinized differently depending on whether the covenant is between purchaser and vendor or between employer and employee. A non-competition covenant in an employment agreement that restricts the post-termination activities of an employee is subject to more rigorous scrutiny than a non-competition covenant in a sales agreement that restricts the post-sale activities of the vendor: Shafron, at para. 23.
[35] The party seeking to enforce the restrictive covenant has the onus of demonstrating that it is reasonable as between the parties; the party seeking to avoid enforcement has the onus of showing the covenant is unreasonable with respect to the public interest: Martin, at para. 50.
[36] In order to withstand scrutiny, a covenant must be clear as to activity, time, and geography. A covenant that is ambiguous on any of these matters is prima facie unenforceable. This is because it is not possible to show, in the face of unresolved ambiguity, that the covenant is reasonable: Shafron, at paras. 27, 43; Martin, at para. 51.
[37] It does not follow, however, that if the covenant is clear or the ambiguity is resolved, the covenant will be upheld. The covenant still needs to be assessed for reasonableness given the meaning ascribed to its terms by the interpretive process.
[38] Where, properly interpreted, the covenant as worded is not shown to be reasonable, the court may not effectively rewrite it to reflect terms the parties may have reasonably agreed to. The court is not permitted “to rewrite a restrictive covenant in an employment contract in order to reflect its own view of what the parties’ consensus ad idem might have been or what the court thinks is reasonable in the circumstances”: Shafron, at para. 47.
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[50] Although M & P argues that the language of the covenant in issue uses phrases contained in non-competition clauses that have been upheld, the situation in each case was materially different from the issue here. I refer to two cases to illustrate the point.
[51] In Elsley v. J.G. Collins Ins. Agencies, 1978 CanLII 7 (SCC), [1978] 2 S.C.R. 916, the covenant provided that the manager of a general insurance business could not, after termination “directly or indirectly, and whether as principal, agent, director of a company, traveller, servant or otherwise, carry on or be engaged or concerned or take part in the business of a general insurance agent”: at p. 919. The issue in Elsley was whether the covenant was too broad because it went beyond restricting the employee from soliciting the employer’s customers. In holding that it was not overly broad, the court considered the covenant to be justified as the employer’s legitimate interests could be protected only by a covenant that prevented the employee from “establishing his own business or working for others so as to be likely to appropriate the employer’s trade connection through his acquaintance with the employer’s customers”: at p. 926. The covenant was considered on the full extent of its reach and that reach was, in the circumstances, found to be reasonable. The problem for M & P in this case is that it is forced to argue for a more restricted reach of the covenant than its terms provide in order to bring it within reasonable limits.
[52] Nor is M & P assisted by Martin, where covenants (in the sale of a business) that included the words “directly or indirectly”, “engage in” and “be concerned with” any business that competes with the business sold were held to be unambiguous. The question is not whether it is possible, in some covenants, for those phrases to be used unambiguously. The question is whether this particular covenant, as a whole including such phrases, can be demonstrated to be reasonable. In Martin, unambiguous covenants were found to be unreasonable as to both the duration and the scope of the prohibited activities: at paras. 59, 68.
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