What can employers learn from Beyonce’s hit song, “Single Ladies”? A surprising amount, I would suggest, when it comes to drafting non-competition clauses.
A decision from the Alberta Court of Queen’s Bench (equivalent to Ontario’s Superior Court of Justice), Enerflow Industries Inc. v Surefire Industries Ltd., 2013 ABQB 196 (CanLII), provides a solid overview of the enforceability of non-competition clauses and this blog will explain why sometimes it pays to "put a ring on it."
Non-Competition Clauses
Returning to my opening question, what does "Put a Ring On It" have to do with employment law in general and non-competition agreements in particular? Well, let’s look at some of the song’s lyrics:
Up in the club, we just broke up, I'm doing my own little thing
Decided to dip and now you wanna trip 'Cause another brother noticed me
I'm up on him, he up on me
Don't pay him any attention
Just cried my tears, for three good years
Ya can't be mad at me
'Cause if you liked it, then you should have put a ring on it If you liked it, then you shoulda put a ring on it
Don't be mad once you see that he want it 'Cause if you liked it, then you shoulda put a ring on it
What Ms. Knowles is essentially articulating is the reason why employers use non-competition agreements in the first place: to prevent their employers from going to the competition.
The most important part of the lyrics, for the purposes of this post, are the line “Don't be mad once you see that he want it / 'Cause if you liked it, then you shoulda put a ring on it.” Which is to say: If you recognize the value in something, you better find a way to protect it.
Put a Ring On It
The “ring” in the song unquestionably refers to an engagement ring. However, with respect to non-competition agreements putting a ‘ring’ on it is also an advisable idea.
The issue in the Enerflow v Surefire case was whether a non-competition agreement was too ambiguous to be of legal effect.
The wording of the impugned provision was as follows:
For good consideration and as an inducement for Enerflow Industries Inc. to employ Dean Pryor, the undersigned Employee hereby agrees not to solicit staff with intentions to employ and not to directly or indirectly compete with the business of the Company and its successors and assigns during the period of employment and for a period of two years following termination of employment and notwithstanding the cause or reason for termination.
The term “not compete” as used herein shall mean that the Employee shall not own, manage, operate, consult or to be employee [sic] in a business substantially similar to or competitive with the present business of the Company or such other business activity in which the Company may substantially engage during the term of employment.
In deciding that Enerflow could not rely upon the agreement so as to prevent Mr. Pyror from competing with his former employer, and in dismissing Enerflow’s case against him, the Honourable Mr. Justice J. T. McCarthy thoroughly canvassed the law with respect to non-competition agreements. While considered by the Alberta court, the analysis, I would suggest, is equally applicable to the Ontario legal situation.
Fatal to the enforceability of the Enerflow agreement was the lack of geographic restriction. Wrote Justice McCarthy on this point:
[36] … I note, first, that the Non-Compete Agreement contains no geographic restriction. On its face, it purports to prevent Mr. Pryor from competing with Enerflow anywhere in the world. This is clearly unreasonable as such an onerous restriction on Mr. Pryor cannot be necessary to protect Enerflow’s interests. Therefore, the Non-Compete Agreement is overly broad in this respect.
[37] Further, I cannot interpret the Non-Compete Agreement as applying only to a more restricted geographic area. As set out above, the case law is clear that the courts are not to “read down” non-competition agreements that are overly broad in scope. Rather, such agreements must be treated as unenforceable.
[38] In my view, the Non-Compete Agreement also goes too far in respect of the activities it aims to restrict.
Commentary
The reason I make reference to the song “Put A Ring On It” is because when drafting a non-competition agreement it often makes sense to use a radius around a point for the geographic restriction rather than trying to define a geographic area. (For another example of the failure to properly describe the geographically restricted area of non-competition, consider the use of the term “Metropolitan City of Vancouver” considered by the Supreme Court of Canada in the case of Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 (CanLII), [2009] 1 SCR 157) It is not hard to find an internet application that will allow one to draft a radius around a fixed point.
In the Enerflow case, not only did the employment agreement fail to properly describe the geographically restricted area it did not specify any geographic area at all, which was clearly an issue for the court.
And while Canadian courts have enforced non-competition agreements with a global restriction on trade, the reluctance with which they will do so is usually very evident.
Takeaway for Employees with Labour Pains
The takeaway for employees is that simply because you may have signed a non-competition or non-solicitation agreement does not necessarily mean that you have to abide by it.
Before making any decisions, it is always prudent to seek legal advice. If you are in Ontario, I would be happy to be of service to you.
Takeaway for Employers with Labour Pains
The takeaway from employers is that if one wishes to protect their proprietary interests and trade secrets it would be prudent to ‘put a ring on it,’ and have your employees sign an employment agreement.
For professional assistance in drafting such agreements, contact me..
Contact Me
I can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321 x233.
Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. For 2.5 years he was in-house legal counsel providing employment law advice to one of Canada’s largest corporations. He has also been a part-time professor at Algonquin College teaching Trial Advocacy for Paralegals and Small Claims Court Practice.
--As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
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