By Normand Laurendeau, from our Labour and Employment Law Group
September 2, 2020 — Non-competition and non-solicitation clauses are commonplace in employment contracts and are subject to rules that have been well defined by the courts. However, as illustrated by the recent Superior Court decision in FLS Transportation Services Limited v. Fuze Logistic Services Inc., 2020 QCCS 2604, their prevalence does not mean that courts will enforce them unconditionally.
A classic case of default under a restrictive covenant
The case involves two companies in the customs brokerage and transportation field. On July 1, 2020, the plaintiff receives emails from several employees announcing their resignation. Within a few days, a dozen employees abandon their job. During the weeks that follow, the plaintiff learns that they have become employed by the defendant and continued to provide services to the plaintiff’s customers.
On July 21, the plaintiff launches proceedings before the Superior Court to obtain a provisional injunction compelling its competitor and its former employees to abide by the non-competition and non-solicitation clauses that bound them. The defendant, taken by surprise, failed to appear before the court to defend its rights. The injunction is issued the next day.
Do the employees have grounds to be freed from their obligations?
On August 5, the parties are back before the court to obtain a safeguard order. On that occasion, the defendant reveals the plaintiff’s high staff turnover: within a span of around four years, whereas the plaintiff’s Montréal office had 23 employees before the July departures, no less than 115 people had come and gone, an indication of a toxic workplace. On the national scale, 254 employees out of 300 had come and gone.
The initial provisional injunction is extended. However, the judge is aware that the proviso in article 2095 of the Civil Code of Québec could apply: “An employer may not avail himself of a stipulation of non-competition if he has resiliated the contract without a serious reason or if he has himself given the employee such a reason for resiliating the contract.”
The judge then asks the plaintiff to adduce evidence explaining that high turnover: should it fail, and a toxic work climate be proven, the defendants might be released from the restrictive covenants.
Conclusion: The former employer is denied a safeguard order
When the proceedings resume, on August 20, the plaintiff fails to adduce such credible evidence, merely presenting general statements on the duties of branch managers and the company’s policies.
The judge ruled that the plaintiff had not complied with the requirements made on August 5, and that, accordingly, a safeguard order should not be issued.
True, as the judge noted, the case is still at the interlocutory stage. The conclusions could be different when the case is heard on the merits. Still, this decision illustrates that even clearly compelling clauses will not be enforced unconditionally.
In this case, the author was representing the former employees.