Non-Competition Agreement Can Increase Reasonable Notice Entitlement

Does the fact that an employee signed a non-competition agreement have any impact on the reasonable amount of notice of termination of employment to which that employee is entitled?

According to a recent decision from the Ontario Superior Court of Justice, the answer is yes.

In a decision released in late December 2012 the Honourable Justice J. Patrick Moore held that the fact that an employee had signed a twelve-month non-competition agreement was a factor to be weighed in the calculation his reasonable notice period.

The reasons for Justice Moore’s decision can be found on CanLII at Dimmer v. MMV Financial Inc., 2012 ONSC 7257 (CanLII).

Facts

As is set out in the reasons for decision, the plaintiff employee enjoyed employment at MMV Financial Inc. (“MMV”) until 15 March 2010 when his position was terminated, without notice or cause. He sued for damages in lieu of notice and for other relief. While the two sides agreed that he was entitled to damages, they disagreed on the nature and quantum of damages to be awarded.

Of particular relevance to this post is the fact that the plaintiff employee had signed a twelve-month non-competition agreement. As found by Justice Moore, the non-competition agreement that Mr. Dimmer was required to sign was very specific in mandating that for a period of one year following his termination of employment, regardless of the reason for termination, he could not compete directly or indirectly in marketing or selling a product or service that was competitive to those offered by MMV.

Decision

In resolving that the plaintiff was entitled twelve months of reasonable notice Justice Moore made specific reference to the non-competition agreement as follows:

[99] MMV required Mr. Dimmer to agree to be bound by a non-competition agreement as a term of his employment and it insisted that he abide by the agreement for one year following his dismissal. Mr. Dimmer complied.  In my view, this agreement effectively eliminated any opportunity to obtain similar employment during that year and it seriously impeded his ability to obtain employment at all, even in fields beyond the reach of the non-competition agreement. This too is a factor weighing in favour of a longer notice period.

[Emphasis added.]

Commentary

While Justice Moore did not expressly say so, it is reasonable to conclude that the fact that the plaintiff believed that he was precluded from working in a competitive position (it should be noted that Justice Moore undertook no analysis of whether the non-competition agreement was actually of legal force or effect) weighed heavily in the judge’s decision to award the plaintiff twelve months of reasonable notice. (For analysis as to why the non-competition agreement may not have been legally enforceable see the post Non-Compete and Wrongful Dismissal)

While the fact that a non-competition agreement had been signed was no doubt not the only factor considered by the court, one cannot overlook the fact that His Honour did make specific reference to the agreement on at least two separate occasions in his rather short reasons for decision.

In my opinion it is likely that the non-competition agreement served to increase the reasonable notice period to which the plaintiff was entitled. (For more on reasonable notice periods and how to calculate them, see What is Wrongful Dismissal?)

Takeaway for Employees

The takeaway for employees who find themselves suddenly unemployed is that it typically prudent to seek professional legal advice. As the Dimmer case demonstrates there are several factors that have to be considered in calculating a reasonable notice period; one of which can be the existence of a non-competition agreement.

If you find yourself suddenly unemployed in Ontario, the employment lawyers at Ottawa’s Kelly Santini LLP would be happy to be of service to you.

Takeaway for Employers

The takeaway for employers is that while non-competition agreements have their purposes, great care should be used in drafting such agreements. Indeed, a non-competition agreement should be a part of a well-drafted employment agreement.

If you are looking for a non-competition agreement for one of your employees, or if you would like to have your non-competition agreement reviewed, or if you are looking for any sort of employment agreement or documentation, the employment lawyers at Kelly Santini LLP would be happy to be of service to you as well.

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As always, everyone’s situation is different.  The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden, publisher of the law blog for the suddenly unemployed, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.

Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, and part-time professor at Algonquin College teaching Trial Advocacy for Paralegals. He is a trustee of the County of Carleton Law Association for 2013.