Law permits competition
Author: Daniel A. Lublin
Thinking of jumping ship to the competition? Or are you dreaming of developing a rival firm? You’d better think twice before taking your clients with you.
Having made the decision to jump to a competing company, Paul Brownlee thought he could solicit his old clients to join him. But his former employer, Phoenix Restorations Ltd., felt otherwise. Brownlee had signed three employment contracts with Phoenix providing that, for two years following his departure, he would not compete with it or solicit its clients.
Despite the contracts, once Brownlee left Phoenix he visited two of its major clients on behalf of his new employer in an effort to solicit them. After learning of this, Phoenix applied for an interim court order seeking to prohibit Brownlee from working for a competitor and from soliciting Phoenix’s customers and business.
In assessing whether to uphold a contract limiting post-employment competition, a court must first determine if that agreement is reasonable and fair. According to the B.C. judge who recently heard this case, Phoenix’s contracts with Brownlee were unenforceable. The contractual clauses limiting competition and solicitation were too broad and captured business that Phoenix did not compete for. In the court’s view, placing such restraints on Brownlee was simply unfair.
This case demonstrates how far Canadian courts may go to overturn what is perceived to be an unfair limit on competition. The key is often whether or not a contract will be upheld. Upon departing, employees should first pause and consider the following:
- Does your contract limit solicitation and/or competition? Such clauses are commonplace in today’s employment contracts – and are increasingly being enforced.
- In addition to contractual obligations, all employees have implied duties of good faith and fidelity towards their employers, which prohibit taking confidential client information to use in competition against a former employer.
- Employees entrusted with control over the business or even key aspects of it may be viewed as fiduciaries who are required to act in the company’s best interest long after their departure.