Help

Supreme Court Judgments

Decision Information

Decision Content

Supreme Court of Canada

Contract—Hire of service—Restraining covenants—Penal clause—Undertaking not to take similar employment during 5 years—Breach—Invalidity—Civil Code, art. 1666.

Upon being re-hired by the plaintiff company, the defendant signed a document in which he promised among other things:

(2) While in your employ, and for a further period of five years after leaving same, I will not induce or attempt to induce any client or prospect of yours, directly or indirectly, to take their business elsewhere or to cease factoring with you.

(3) While in your employ, and for a further period of five years thereafter, I will not take employment with or work in any capacity whatsoever, directly or indirectly, in Canada, for any other factoring concern or finance company or businesses with similar purposes, or any competitor of yours or with any prospect with whom you may be negotiating.

[Page 149]

(5) I expressly understand and agree that should I contravene any of the prohibitions above set out, I shall be liable to you for a penalty of ten thousand dollars, which shall become due and exigible to you without any demand therefore being necessary.

The defendant resigned before the termination of the contract and, three weeks later, found employment with a competitor of the plaintiff in the factoring business. Alleging breaches of both paragraphs (2) and (3), the plaintiff sued to recover the penalty of $10,000. The action was dismissed by the trial judge on the grounds that the evidence did not establish a breach of para. (2), and that para. (3) was invalid because its ambit was much wider than was required for the reasonable protection of the plaintiff’s interests. This judgment was reversed by a majority decision of the Court of Appeal. The defendant appealed to this Court.

Held (Fauteux C.J. and Pigeon J. dissenting): The appeal should be allowed.

Per Abbott, Spence and Laskin JJ.: Under the Civil Code and the common law employee restraint covenants may be held invalid because of their unreasonable duration or because of their unreasonable territorial ambit, having regard in each respect to the range of businesses or activities covered by the restraining covenants. The principle raised in the present case is the application of a rule of reason to a balancing of the interests of the employer and the erstwhile employee in respect of the need of the former for protection of his business and of the latter for economic mobility, in the light of a policy that discourages limitations on personal freedom, and, specifically, on freedom of economic or employment opportunity. On this phase of the case, the five year prohibition is quite unreasonable and hence contrary to public order.

As to paragraph (3), it is offensive to the principle of public order because it exceeds, in its Canada-wide ambit, any reasonable requirement of the plaintiff for the protection of its business interests which, on the record, are centered in the province of Quebec.

Per Fauteux C.J. and Pigeon J., dissenting: A contract the object of which is to prohibit a resigning employee from working for a competitor of his former employer, or from soliciting the latter’s clients, only becomes invalid if it impairs freedom

[Page 150]

of employment by reason of excessive limitations in terms of time and space, and with regard to the nature of the activities forbidden to the employee. This principle on which the defendant relies, does not derive from any article of the Civil Code. It is, however, recognized, in the courts of Quebec as it is in the courts of France, despite the same silence on the point in the Code Napoléon. The defendant’s undertaking not to take employment with a competitor, a “finance company” or a similar business, must be regarded as divisible. The first part of this undertaking is clearly valid and the defendant has admitted a breach of it. The term of five years does not raise any difficulty as regards the obligation not to enter the employ of a competitor, since this field of activity is itself sufficiently limited. Further, the defendant was also in breach of the undertaking not to attempt to induce a client to cease doing business with the plaintiff, and is not entitled to plead the excessive duration of this agreement as a defence to the charge of having broken it shortly after leaving his employment.

APPEAL from a judgment of the Court of Queen’s Bench, Appeal Side, province of Quebec[1], reversing a judgment of Montpetit J. Appeal allowed, Fauteux C.J. and Pigeon J. dissenting.

Harry Blanshay, Q.C., Edward Blanshay and Lionel Blanshay, for the defendant, appellant.

Philip Meyerovitch, Q.C., and Yoine Goldstein, for the plaintiff, respondent.

The judgment of Fauteux C.J. and of Pigeon J. was delivered by

PIGEON J. (dissenting)—The business of the respondent consists of purchasing for its own account, for an agreed commission, all accounts receivable resulting from credit sales made by merchants dealing with it. The appellant Cameron was in its employ from September 20, 1948, to July 1, 1954, first as a collection agent, then, after various promotions, as Assistant Manager. From July 1, 1954, to June 19, 1956, he worked as comptroller for a hardware manufacturer. On July 1, 1956, he returned to the respondent’s employ as assistant to the General Manager having

[Page 151]

on June 4, when he was re-hired, signed the document on which this case is based and in which, on pain of a $10,000 penalty, he promised among other things:

(2) While in your employ, and for a further period of five years after leaving same, I will not induce or attempt to induce any client or prospect of yours, directly or indirectly, to take their business elsewhere or to cease factoring with you.

(3) While in your employ, and for a further period of five years thereafter, I will not take employment with or work in any capacity whatsoever directly or indirectly, in Canada, for any other factoring concern or finance company or businesses with similar purposes, or any competitor of yours or with any prospect with whom you may be negotiating.

In the course of his employment, Cameron dealt with the respondent’s clients and with prospective clients as well. He was familiar with the terms both of the contracts made with them and of contracts offered to them. On October 1, 1959, he left the employ of the respondent, and on October 21 he started work as General Manager of Business Factors Corporation, a new, rival firm, established by a President who, as he said himself, knew very little about this business. By a curious coincidence, this other firm had obtained its letters patent on October 1, 1959.

For a summary of what then took place, it seems appropriate to refer to the following passage from the reasons of Rinfret J., in which, it should be noted, he treats the respondent, Canadian Factors, and its wholly owned subsidiary, Industrial Factors, as a single unit, as indeed it was in fact for the purposes of appellant’s employment although his contract made no mention of it.

[TRANSLATION] The defendant himself acknowledged having discussed factoring in a general way with some Canadian Factors clients with whom he had become friendly during the course of his employment. Knowing the terms and conditions of their old contracts, he personally negotiated new contracts in favour of Business Factors with clients of Canadian Factors, and invited some clients of Canadian Factors to terminate their agreements, come over to Business Factors and set up new agreements. Even

[Page 152]

if it is true, as he testified, that in most cases the former clients approached him, it is nonetheless true that in at least one case, that of Hartford Spinning, he made the first move; it matters little that he did not speak with the head of the firm since he left the message for him that “if he wished to switch his account that there was a good factoring company waiting to take it.” Cameron admits that this might be described as “solicitation,” but it was not “inducement,” which is all the contract prohibits.

The Superior Court accepted the subtle distinction suggested by Cameron and, as regards paragraph 2, dismissed the action on the grounds that he had not contravened his undertaking.

As to the breach of paragraph 3, which is not denied, the Superior Court held that this provision was invalid because its ambit was much wider than was required for the reasonable protection of respondent’s interests.

This judgment was reversed by a majority decision of the Court of Appeal[2], and the appeal thus raises two questions:

(1) Was there a breach of contract?

(2) Is the contract valid?

Only the breach of paragraph 2 is denied. Rinfret J. of the Court of Appeal said on this point:

[TRANSLATION] I do not see how it can be contended that Cameron did not at least attempt, indirectly if you will, to persuade clients to cease doing business with Canadian Factors.

In testing the validity of this conclusion, I do not find it necessary to decide whether the respondent and its subsidiary should be treated as one for the purposes of the contract with Cameron. In fact, the clearest instance of solicitation of a former client, that of Hartford Spinning, concerns one of the respondent’s own clients. The amount claimed is a fixed penalty which would be the same whatever the number of acts done in breach of the contract. Subject to this, I would say that the conclusion appears to me to accord with the rule that must be followed in the circumstances

[Page 153]

and which the Juris-Classeur du Travail sets out as follows under the heading.

[TRANSLATION] “The Individual Contract of Employment”:

141. In principle, a clause in restraint of competition must be interpreted restrictively, but this does not mean that it should not have all the consequences the parties sought to attach to it, even if these have not been expressly mentioned.

Thus, the temporary prohibition of an insurance agent from representing another company implies a prohibition from forming a new company and becoming its manager (Cass, req., 19 Dec. 1928: S. 1929, 1, 72; Cass, req., 14 Feb. 1939: S. 1939, 1, 146).

The decision of the Cour de Cassation referred to at the end of this quotation held that when the agent of an insurance company is expressly forbidden by contract, in the event of his resignation, from becoming a general agent or representative of another insurance company for a period of one year from the date When he actually ceases his employment, he breaks his contract if he forms a company designed to insure the same risks and, within the year following his resignation, carries out the duties of managing director of this new company. It was held that the temporary prohibition from representing a similar company includes a fortiori a prohibition from forming and managing such a company.

The second question at issue in the present case is clearly much more important than the first. Moreover it would have to be decided in any event, even if it was held that there was no breach of paragraph 2, the breach of paragraph 3 being admitted. The wide divergence of views expressed, not only as between the Superior Court and the Court of Appeal, but also within the latter, should be noted. Not only were there two dissenting judges, but those in the majority were themselves unable to agree.

The principle on which the appellant relies in asking the Court to declare void the contract that he signed does not derive from any article of the Civil Code of Quebec. It is, however, recognized in the courts of Quebec as it is in the courts of France, despite the same silence on the point in the Code Napoléon.

[Page 154]

In La Semaine Juridique (1960, vol. 1, para. 1593), Me Raymond Lindon, Advocate General at the Cour de Cassation, gives a historical account of the few decisions on this point. It appears to me to be worth reproducing the following passages from this study:

[TRANSLATION] The courts have long had to rule on the validity of clauses restricting business competition, and we know that it is well-established law that these must be limited, either in time or in space.

Where contracts of employment are concerned, the situation is different in principle, since no sale is involved and there is not, in consequence, the guarantee usually due from the seller.

Nevertheless, the early cases on employment contracts were decided on what had developed in relation to the sales of businesses.

Thus, according to a decision of the Chambre Civile of March 26, 1928 (D.P. 1930, 1, 145, and note Pic), the restraint remains legal when it is perpetual but limited to a given locality, and also when, though it is applicable everywhere, it is only to be observed for a certain time, and when it is only directed at employment in a given trade or industry (see also: Civ. 27 Oct. 1936: J.C.P. 1937, II, 3; D.H. 1936, 571; Civ. 14 April 1937: S. 1937, 1, 203; Civ. 2 August 1938: D.H. 1938, 513, and Civ. 18 June 1945: D. 1945, 332).

Similarly, an undertaking by an employee if he should resign not to enter the employ of a competing firm has been declared invalid, as impairing freedom to work and to earn a living, when this undertaking is without limit as to duration or place (Req., 25 May 1936: D.H. 1936, 380).

* * *

A case decided October 16, 1958 (Bull. Cass. 1958, No. 1043-1, p. 791), involved a sales representative who travelled for his employer in three Departments, and who had undertaken not to accept similar or comparable employment in France or North Africa for ten years after his leaving the firm. Upon being dismissed for serious misconduct, he immediately went to work for a similar firm in the same area, and there engaged in disloyal competition. Sued by his former employer, he contended that the clause in restraint of competition which he had signed was invalid; and indeed, the extent of the prohibition in time and area could be deemed

[Page 155]

excessive: in effect, it required the sales representative to change his occupation, or go abroad, for ten years. Yet it doubtless appeared to the Cour de Cassation that complete cancellation of the clause would sanction the quite deplorable practice of immediately going to work for a competitor in the same area, even though this practice was clearly contrary to the clause in question (quite apart from acts of disloyal competition which could perhaps serve as the basis for an action under Article 1382 of the Civil Code).

The Supreme Court then said that “by deciding that the clause prohibiting re-establishment was at any rate valid for the three Departments in which G. (the representative) had carried on his activities, the judgment appealed against had provided a legal basis for the decision, quite apart from unnecessary reasons.”

* * *

More recently, the Chambre Sociale stated the principle in a judgment on appeal (Soc. 21 Oct. 1960: J.C.P. 1960, II, 11886), saying that although a clause in restraint of competition should be declared void in so far as it impairs freedom to work by reason of its extent in time and space, and with regard to the nature of the activities of the person concerned, such a clause may however at least be held valid to the extent that, in consideration of the apprenticeship from which he has benefited, it prohibits an employee from going to work the day after the termination of his employment for a business in direct competition with his former employer, and operating in the same town.

The judgments of the Cour de Cassation are based on the general principles of French civil law, which in this matter do not differ from those of the Quebec civil law. In principle, a contract the object of which is to prohibit a resigning employee from working for a competitor of his former employer, or from soliciting the latter’s clients, is legal. It only becomes invalid if it impairs freedom of employment by reason of excessive limitations in terms of time and space, and with regard to the nature of the activities forbidden to the employee. But must such a contract be declared invalid as a whole because, in certain respects that do not apply in this instance, it goes beyond what is compatible with a proper conception of freedom of employment?

[Page 156]

Cameron admits that in the month following his resignation from the respondent’s service he entered the employ of a competing firm whose activities are so similar to those of the respondent that they were able to make use of an exact copy of one of the respondent’s contract forms. He does not contend that the contract is excessive and unreasonable in prohibiting him from acting in this way. Essentially, his contention regarding paragraph 3 is that it goes too far by including not only competitors, but also “finance companies” and similar businesses. Granting for the sake of argument that this complaint is justified, the following question arises: is the valid undertaking not to take employment with a competitor invalidated by the invalid undertaking not to enter the employ of a “finance company” or similar business? This amounts to asking whether these obligations are separate or indivisible. The contract itself reveals that it was not the intention of; the parties that Cameron’s obligations should be indivisible. In fact, the final clause reads as follows:

(5) I expressly understand and agree that should I contravene any of the prohibitions above set out, I shall be liable to you for a penalty of ten thousand dollars, which shall become due and exigible to you without any demand therefore being necessary.

The learned trial judge certainly appears to have recognized that, in this context, “any of the prohibitions” refers to each of the paragraphs separately. His reasoning, on the other hand, like that of the dissenting judges on appeal, implies that each paragraph forms an indivisible whole, so that if in any respect it exceeds the limit of what is tolerable, it is completely invalid. I fail to see why each paragraph in a contract of this type should be regarded as indivisible. I know of no principle of law which would make the divisibility of an obligation or a contract dependent on its paragraphing.

It is true that, in general, the rule that a person cannot be bound by an agreement that he did not make means that even separate clauses may often be treated as one provision. In a sale, the fact that the price and delivery date are set out in separate paragraphs does not mean that these

[Page 157]

two elements will be considered to be severable. Here, however, I really do not see why the undertaking not to take employment with a competitor should be regarded as inseparable from the undertaking not to enter the employ of a “finance company” or a “business with similar purposes”. According to the reasoning which prevailed in the Superior Court, if the prohibition from taking employment with a competitor had been in a different paragraph from the prohibition from entering the employ of a “finance company” or similar business, the judgment would have to be against Cameron, but because the two prohibitions were included in the same paragraph, he would not be held liable for his breach of the same undertaking.

With all due respect, I cannot accept such a formalistic interpretation of the contract. Since it must agreed that more than one undertaking was intended, the several distinct undertakings must be ascertained by reference to the substance of the contract, and if this is done I do not see how it is possible not to regard the undertaking not to take employment with a competitor as a separate one.

Moreover, the plea of invalidity entered by Cameron to the action based on the contract signed by him is not based on a claim that application of the contract to the circumstances of the case would be repugnant to a proper conception of freedom of employment. He does not contend that it was unreasonable or excessive to require that he should not do what he did. His contentions are based solely on the fact that, according to him, the provisions of the contract could also be applied in other circumstances in which the requirement would be unreasonable and excessive. In view of the basic fact that the primary aim of the contract is neither unreasonable nor excessive, I do not see what principle can allow him to slough off an obligation which he freely accepted because it was stipulated concurrently with an invalid obligation.

It is to be noted that we are not dealing with a subordinate employee who accepts a hiring formula that is practically imposed on him. The present case concerns a senior employee who, in order to attain a position of trust with a new

[Page 158]

employer, accepted an agreement in which the latter sought to provide against the very thing that happened. By signing this document in such circumstances, Cameron clearly represented himself as satisfied that his employer was not going beyond what he could reasonably require. Obviously, this could not have the effect of validating an agreement contrary to freedom of employment; but that is not the issue here. The real question is whether Cameron can use the excessive portion of the contract as an excuse to rid himself of what is not excessive when he has agreed that the contravention of any of the prohibitions would oblige him to pay the contractual penalty of $10,000. A refusal to apply the penalty in these circumstances seems to me to imply a reversion to a concept of the old Roman law: the tribunal could not grant the plaintiff less than he sought in his claim; consequently, if he claimed too much, his right was lost. The plus petitio rule has long been abandoned. I do not see why an analogous principle should be followed where a party, seeking to protect a legitimate right, has stipulated a penalty not only for certain situations that have in fact occurred and in which this is allowable, but also for other hypothetical situations that did not in fact materialize and in which this is unacceptable.

The term of five years does not appear to me to raise any difficulty as regards the obligation not to enter the employ of a competitor, since this field of activity is itself sufficiently limited. In respect of the other obligation (Paragraph 2), it seems to me that we should follow the line of reasoning adopted by the Cour de Cassation, and hold that it is valid, at least in respect of acts committed practically the day after leaving the employer.

On the whole, I am of the opinion that Cameron’s undertaking not to take employment with a competitor, a “finance company” or a similar business must be regarded as divisible, that the first part of this undertaking is clearly valid, and that Cameron has admitted a breach of it. Further, I consider that he was also in breach of the undertaking not to attempt to induce a client to cease doing business with Canadian Factors, and is not entitled to plead the

[Page 159]

excessive duration of this agreement as a defence to the charge of having broken it shortly after leaving his employment.

Consequently, I am of the opinion that the judgment of the Court of Appeal requiring him to pay the stipulated amount is well-founded. I would dismiss the appeal with costs.

The judgment of Abbott, Spence and Laskin JJ. was delivered by

LASKIN J.—This appeal arises out of a suit by the respondent, Canadian Factors Corporation Limited of Montreal, to recover from the appellant Cameron the sum of $10,000 stipulated as a penalty for which Cameron agreed to be liable on breach of any of the prohibitions in a contract of employment dated June 4, 1956.

Cameron had been an employee of the respondent for approximately six years when he left on July 1, 1954. After almost two years’ service as a comptroller with a firm in a different and unassociated line of business, he was re-employed by the respondent on terms set out in a letter of June 4, 1956, addressed to the respondent by Cameron and signed by him. The issues for determination in this Court as in the Courts below arise under the numbered paragraphs 2, 3 and 5 of the letter which in its entirety reads as follows:

Gentlemen:

In consideration of my re-engagement by you, I hereby bind and oblige myself as follows:

(1) To faithfully, honestly and diligently serve you in the performance of such duties as you may from time to time designate, and to devote my entire time, labour, skill and attention to such employment.

(2) While in your employ, and for a further period of five years after leaving same, I will not induce or attempt to induce any client or prospect of yours, directly or indirectly, to take their business elsewhere or to cease factoring with you.

(3) While in your employ, and for a further period of five years thereafter, I will not take employment with or work in any capacity whatsoever, directly or indirectly, in Canada, for any other factoring concern or finance company or businesses

[Page 160]

with similar purposes, or any competitor of yours or with any prospect with whom you may be negotiating.

(4) In the event of my resigning, I will give you at least ninety days prior written notice.

(5) I expressly understand and agree that should I contravene any of the prohibitions above set out, I shall be liable to you for a penalty of ten thousand dollars, which shall become due and exigible to you without any demand therefore being necessary.

Although not stated in the letter, Cameron was re-employed as comptroller but his duties went beyond the ordinary signification of that office. He looked after credit and collections, supervised the hiring, discharge and training of staff, and solicited new business, including the negotiation of factoring contracts which were the substance of the respondent’s business. On October 1, 1959, following a falling out with the respondent’s president, Cameron resigned and obtained the respondent’s consent to forego the 90 day notice prescribed by paragraph 4 of his contract letter. About three weeks later he found employment with Business Factors Corporation, also a Montreal-based company, and admittedly a competitor of the respondent in the factoring business. Some two months later the respondent brought its suit in the Quebec Superior Court, alleging breaches by Cameron of paragraph 2 by (a) inducing and attempting to induce clients of the respondent and of a subsidiary company to take their business elsewhere, and specifically to Business Factors Corporation; and (b) “soliciting” (a word not used in the contract) clients and prospects of the respondent and its subsidiary with a view to inducing them to do business with Business Factors Corporation; and a breach of paragraph 3 by taking employment with a direct competitor.

The suit was dismissed by Montpetit J. who held that the evidence did not establish a breach of paragraph 2 and that as a matter of law paragraph 3 was not enforceable against Cameron, being illegal as contrary to public order. On appeal[3], these holdings were reversed by a majori-

[Page 161]

ty decision. Casey and Rinfret JJ. gave separate reasons (Badeaux J. concurred with both of them) for the reversal. The former took the single point that it was for Cameron to prove the facts upon which a finding of illegality of the challenged paragraphs could be made. According to Casey J., there was no Code principle of prima facie illegality in the restrictions contractually agreed to, and Cameron had not established facts upon which it could be said that the contract was a negation of public order. Rinfret J. was of the view that the trial judge had been wrong on paragraph 2; the evidence established a breach, and it was for Cameron to adduce facts upon which a declaration of its illegality could be made and this he failed to do. Rinfret J. held that paragraph 2 was severable from paragraph 3, but even as to this latter clause (of which there was undeniably a breach) the circumstances were such as not to make it unreasonable to exact the restrictions therein.

In dissent, Montgomery J. differed from the trial judge by concluding that there was proof of a breach of paragraph 2, but he was of opinion, as to both paragraphs 2 and 3, that the five year period of limitation was unreasonable and offended public order. Brossard J. similarly was of opinion that both paragraphs were breached but he approved the legal principles applied by the trial judge to paragraph 3, declared that the prohibitions in paragraphs 2 and 3 were not severable, and concluded that on such facts as were put in evidence there was a sufficient basis for holding that the contract restrictions were illegal.

I approach the questions that require an answer in this Court on the basis of a breach having been established of paragraph 2 as well as of paragraph 3, but I am not to be taken as agreeing that the breach can be attributed to any effect of Cameron’s activities on the respondent’s subsidiary, Industrial Factors Corporation Limited. Indeed, in this Court counsel for the respondent abandoned any reliance on alleged breaches against Industrial Factors Corporation Limited. Counsel for the respondent conceded, moreover, that whatever be the number of breaches, whether of paragraph 2 or of paragraph 3 or of both con-

[Page 162]

currently, only one penalty sum of $10,000 could be exacted and thereafter all the contract obligations were discharged. I may add here that it was not argued that the contract was in any way tainted by the size of the penalty.

The arguments addressed to this Court, and the opinions expressed by the members of the Courts below, posed for decision such questions as (1) whether either or both paragraphs 2 and 3 are unlawful as contravening public order; (2) whether they are severable if one or the other is invalid; (3) whether either one is, taken alone, partially valid and hence enforceable in this case, although some parts are invalid; and (4) whether the burden of proof, on whomever it rests, is relevant to the determination of the case. In the view I take, the third and fourth issues just enumerated do not require an answer. The second one may be dealt with shortly by saying that paragraphs 2 and 3 are clearly severable; none of the obligations undertaken in either one is dependent on or necessarily related to those in the other. In coming to this conclusion, I would construe the words “take employment with or work in any capacity whatsoever …. for” in paragraph 3 as excluding the conduct proscribed in paragraph 2. I turn therefore to the first issue mentioned above.

The one thing common to paragraphs 2 and 3 is the five year duration of their respective prohibitions. No geographical ambit is stated, however, for paragraph 2 as it is for paragraph 3; but counsel for the respondent put it that paragraph 2, by necessary implication, was limited in its reach to those clients and prospects (a term troublesome in itself) who qualified as such at the date that Cameron terminated his employment. I agree that on the record this is the proper construction to put on paragraph 2 but I would not agree that, questions of construction apart, a covenantee may unilaterally circumscribe the scope of a covenant for the purpose of advancing his prospects of success in litigation about its validity.

It is the case both under the Civil Code and under the common law that employee restraint

[Page 163]

covenants may be held invalid because of their unreasonable duration or because of their unreasonable territorial ambit, having regard in each respect to the range of businesses or activities covered by the restraining covenants. I propose to review briefly, but I hope succinctly, the material facts disclosed by the record as a foundation upon which to consider the legal questions of duration, territorial ambit and business scope.

The factoring business in which the respondent was engaged may be generally described as the purchase of manufacturers’ accounts receivable, usually but not invariably without recourse, thus providing immediate financing for the factor’s clients. The evidence in this case does not support a finding of protectible business operations of the respondent beyond the Province of Quebec. I refer here to the geographical ambit of paragraph 3. True, there is a reference in the evidence to a business visit by Cameron on behalf of the respondent to Toronto and of another to Italy where a factoring contract was negotiated, but I do not regard these isolated instances as affording any basis for a protective clause in the formulation of paragraph 3 extending beyond the Province of Quebec.

The present case is untrammelled by any contention of wrongful appropriation of a customer or client list, or of the wrongful use of trade secrets or confidential information. Nor does it engage the fine of cases dealing with the sale of a business or of good will whose value at the time of the transaction depends on the purchaser being entitled to its exclusive use. It raises simply the principle on which Courts act against contractual undertakings by an employee not to compete, and I embrace in this last phrase the prohibitions in paragraphs 2 and 3 of the contract letter. That principle, whether under the Civil Code provisions as to public order (as in art. 13 and 990) or under the common law, is the application of a rule of reason to a balancing of the interests of the employer and the erstwhile employee in respect of the need of the former for protection of his business and of the latter for economic mobility, in the light of a policy that discourages limitations on personal freedom, and, specifically,

[Page 164]

on freedom of economic or employment opportunity. The principle that I have expressed is reflected in Dominion Blank Book Co. Ltd. v. Harvey[4] and in Grossman v. Schwarz[5] in respect of the Civil Code, and in Attwood v. Lamont[6] and in Maguire v. Northland Drug Co. Ltd.[7] in respect of the common law.

The relation of this principle to the terms of paragraph 2 requires an assessment of what is a reasonable time within which the respondent should be expected to put someone else in Cameron’s place to deal with clients’ accounts and with prospective clients in order to protect the respondent’s business interests: see Blake, Employee Agreements Not To Compete (1960), 73 Harv. L. Rev. 625, especially at p. 677, a comprehensive treatment of the issues in this class of case. This feature must, moreover, be balanced by the undoubted right of Cameron to take his experience with him, and by the fact that his duties with the respondent were not unique or special, whatever were his personal qualities. I should have thought that a one year protection for the employer would have been sufficient, and, certainly in my view, two years would be an outside limit of protection. This is to give the respondent the greatest benefit of the doubt which I have about the extent of its business, a matter on which the record is woefully weak.

In sum, on this phase of the case I am of the opinion that the five year prohibition is quite unreasonable and hence contrary to public order.

Paragraph 3 presents even less difficulty for the conclusion that it is offensive to the principle of public order. I am satisfied to deal with it as exceeding, in its Canada-wide ambit, any reasonable requirement of the respondent for the protection of its business interests which, on the record, are centered in the Province of Quebec.

[Page 165]

Moreover, in prohibiting Cameron from working in any capacity in the factoring business, let alone in the other businesses enumerated in the paragraph, it places a hold upon him going beyond any reasonable protection of the respondent’s factoring business, and, at the same time, unreasonably discounts Cameron’s experience to the point of threatening his future in Canada.

I would, accordingly, allow the appeal, set aside the order of the Court of Queen’s Bench (Appeal Side) and in its place direct dismissal of the suit. Cameron should have his costs throughout.

Appeal allowed with costs, FAUTEUX C.J. and PIGEON J. dissenting.

Solicitors for defendant, appellant: Blanshay & Blanshay, Montreal.

Solicitors for the plaintiff, respondent: Meyerovitch, Levy, Meyer & Goldstein, Montreal

 



[1] [1966] Que. Q.B. 921.

[2] [1966] Que. Q.B. 921.

[3] [1966] Que. Q.B. 921.

[4] (1941), 79 Que. S.C. 274.

[5] [1943] Que. K.B. 145.

[6] [1920] 3 K.B.571.

[7] [1935] S.C.R. 412, [1935] 3 D.L.R. 521.

 

Lexum

For 20 years now, the Lexum site has been the main public source for Supreme Court decisions.


>

Decisia

 

Efficient access to your decisions

Decisia is an online service for courts, boards and tribunals aiming to provide easy and professional access to their decisions from their own website.

Learn More