Employer-Friendly Restrictive Covenant Decisions Bloom In Ontario And Alberta | The HR Space

Restrictive covenants have great potential to protect an employer's business interests. In practice, however, enforcing restrictive covenants often proves a challenge since courts scrutinize these clauses carefully. Clauses must be clear and narrowed to what is necessary to protect legitimate business interests, including from a geographical and temporal standpoint. Courts traditionally won't hesitate to find issues with such clauses to declare them unenforceable. However, two recent decisions out of Ontario and Alberta suggest that this is spring in the restrictive covenant landscape, with interpretations relaxed in favour employers.

Ontario: 2158124 Ontario Inc. v Pitton 2017 ONSC 411 (PDF)

In Pitton, an insurance brokerage firm asked the Ontario Superior Court to grant it an injunction against its former employee, Mr. Pitton. To do so, the court needed to determine whether Mr. Pitton had breached his non-solicitation covenant when he left StoneRidge and began working for a competing brokerage.

The employee had two strong arguments: firstly, he argued that the clause titled "Non-Solicitation" was in fact a non-competition clause. The last sentence of this clause required the employee to pay StoneRidge double the annual commission for any client that followed him to a new employer, regardless of whether solicitation of that client had occurred. The employee argued that this sentence was an unreasonable non-competition clause since it had no geographic limitation, meaning the clause as a whole was not enforceable. Secondly, the employee argued that the clause was overly broad because it lacked any definition of "client". He argued that this failure to define or limit "client" meant that it prevented him from soliciting clients from other StoneRidge offices where he had never worked.

The court disagreed with the employee on both counts. Firstly, it affirmed that the non-solicitation clause was just that, and not a non-compete. It did not actually prevent Mr. Pitton from working in the insurance industry. Rather, it only limited his ability to solicit with certain StoneRidge clients. As a result of this, no geographic limitation was necessary. Secondly, the court ruled that a lack of a definition for "client" was immaterial. Looking at the contract and the surrounding circumstances, the court was "persuaded that the Agreement [was] limited" solely to customers of the particular office where the employee worked.

A partial injunction was...