Injunction granted for Non-disclosure of Confidential Information, refused for Non-competition and “Non-solicitation

On a pre-trial application for an injunction, the B.C. Supreme Court refused to grant preliminary injunction to enforce “non-competition” and “non-solicitation” provisions in employment contracts of two key employees. Court ruled that the provision prohibiting defendants from soliciting people with whom they have had no prior dealings and who they would not necessarily have any way of identifying as customers of the plaintiffs was unclear and lacking in certainty.
The plaintiffs were in the business of sale of prescriptions and other medical supplies. The Court stated that a duty of fidelity, including a duty not to use or disclose the employer’s confidential information, is generally implied in employment contracts and survives the termination of those contracts. The Court granted an injunction restraining and enjoining the defendants from: a) directly or indirectly soliciting or enticing any employee of the plaintiffs to leave their employment with the plaintiffs for a period of one year; b ) using or disclosing confidential information, including customer lists and contact information, and information concerning packaging, marketing and distribution of the plaintiffs’ products.

6180 Fraser Holdings Inc. v Ali, 2012 BCSC 247 (CanLII)

Non-Competition vs. Non-Solicitation Covenants

A non-competition clause restrains the departing employee from conducting business with former clients and customers whereas a non-solicitation clause merely prohibits the departing employee from soliciting their business. Generally, the courts will not enforce a non-competition clause if a non-solicitation clause would adequately protect an employer’s interests. A non-solicitation clause – suitably restrained in temporal and spatial terms – is more likely to represent a reasonable balance of the competing interests than is a non-competition clause.

 H.L. Staebler Company Limited v. Allan

What is a “Restrictive Covenant”?

A restrictive covenant in a contract is a restraint of trade. A restrictive covenant precludes the vendor in the sale of a business from competing with the purchaser and, in an employment contract; the restrictive covenant precludes the employee, upon leaving employment, from competing with the former employer.

Preemptively restrictive covenants are prima facie unenforceable; however a reasonable restrictive covenant will be upheld.  To be reasonable, the terms of the restrictive covenant must be unambiguous. Next, the geographic coverage of the covenant, the period of time in which it is effective, and the extent of the activity sought to be prohibited is also relevant. A court will not rewrite a restrictive covenant in an employment contract in order to reflect its own view of what the parties’ consensus ad idem might have been or what the court thinks is reasonable in the circumstances.

In an employment context, to establish that a covenant is reasonable, an employer must be able to prove to the court that the contractual restraint has the following characteristics:

• It protects a legitimate proprietary interest of the employer;
• The restraint is reasonable as between the parties, in terms of temporal length, geographic area, nature of activities prohibited and overall fairness;
• The terms of the restraint are clear and certain; and,
• The restraint is reasonable in terms of the public interest, with the onus of proof on the party seeking to strike out the restraint.

Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 SCR 157

What Is “Confidential Commercial Information”?

Confidential Commercial Information means information that:

1. relates or pertains to matters of finance, commerce, science or technical matters as those terms are commonly understood;
2. need not have an inherent value, such as a client list might have, however, the value of information is dependent upon the use that may be made of it, and its market value will depend upon the market place, who may want it, and for what purposes, a value that may fluctuate widely over time; and
3. administrative details such as page and volume numbering, dates and location of information within the records are not scientific, technical, financial or commercial information.

Merck Frosst Canada Ltd. v. Canada (Health), 2012 SCC 3.

What Is a “Trade Secret”?

A “trade secret” is a subset of confidential commercial information and not patented, and means a plan or process, tool, mechanism or compound which possesses each of the four characteristics below:

1. the information must be secret in an absolute or relative sense (is known only by one or a relatively small number of persons);
2. the possessor of the information must demonstrate that he has acted with the intention to treat the information as secret;
3. the information must be capable of industrial or commercial application; and
4. the possessor must have an economic interest worthy of legal protection.

Merck Frosst Canada Ltd. v. Canada (Health), 2012 SCC 3.