Court Dismisses Non-competition Injunction Against Former Key Employee

• Published date: 30 March 2021
• Subject Matter: Employment and HR, Contract of Employment
• Law Firm: Gardiner Roberts LLP
• Author: Mr James Cook

When relationships end between a business and an individual who was a principal thereof, the business may be understandably concerned about competitive ventures it may face from its former principal. These concerns are particularly acute during the critical time when the principal ceases to work with the business and is embarking on a competitive enterprise. The business may have concerns over confidential information which the principal may have had access to, or may have taken with them after ending their relationship. In some cases, the business may even have a written non-competition agreement with the principal, but restrictive covenants are notoriously difficult to enforce.

In Labrador Recycling Inc. v. Folino, 2021 ONSC 2195 (CanLII), Justice J.T. Akbarali addressed a motion for urgent injunctive relief sought by the plaintiff, a brokerage for the purchase and sale of scrap aluminum, against an individual who had worked for it since 2013. The individual, Folino, had resigned on December 21, 2020, providing 60 days' working notice. His last day with the plaintiff was February 19, 2021. At some point, Folino established a business in competition with the plaintiff. The plaintiff argued that Folino's new business was engaging in competition that was contrary to his fiduciary and contractual obligations and sought an injunction stopping him from doing so.

The motion involved the traditional test for an injunction, requiring the plaintiff to show (a) a serious question to be tried; (b) irreparable harm if the injunction is not granted; and (c) that the balance of convenience favoured granting the injunction: RJR MacDonald Inc. v. Canada (Attorney-General), 1994 CanLII 117 (SCC), 1994 SCC 117, [1994] 1 S.C.R. 311.

However, because the plaintiff was seeking to impede the ability of Folino to earn a livelihood, Justice Akbarali followed a line of cases that require the moving party to show a strong prima facie case, rather than a serious question to be tried: Camino Modular Systems Inc. v. Kranidis, 2019 ONSC 7437, 58 C.C.E.L. (4th) 243, at para. 15. In so doing, the court dealt with several issues that frequently arise in these types of disputes:

1. Whether Folino owed fiduciary obligations to the plaintiff;
2. Whether Folino was in breach of a contractual restrictive covenant;
3. Whether Folino had misused any confidential information;
4. Whether the plaintiff would suffer irreparable harm without an injunction.

The first issue that the plaintiff had to contend...