Background

In 1997, Walker was hired by his uncle Rick to work as the Western Division manager for Consbec. Walker's job was to "grow the business" and lead Consbec's bids for contracts to provide blasting and drilling services. There was neither a written employment contract nor a separate non-competition or non-solicitation agreement.

On June 10, 2002, Walker sent his uncle a letter of resignation that was effective immediately. Shortly after leaving Consbec, Walker incorporated his own blasting and drilling company and successfully bid on several contracts in direct competition with Consbec. Consbec alleged that Walker had an obligation not to compete with Consbec and sued Walker for damages suffered in connection with: the loss of the value of the contracts; and, insufficient notice of his resignation.

Competing Against a Former Employer

Canadian courts generally favour free competition and an individual's ability to make a living. Therefore, an employee can always freely compete with a former employer unless the employee: (1) is subject to an enforceable non-competition agreement, (2) is a fiduciary of the employer, or (3) uses the employer's confidential information.

As there was no non-competition agreement between Walker and Consbec, the Court proceeded to consider whether he was a fiduciary of Consbec. Certain employees have a fiduciary duty to act in the best interest of their employer, including a duty to refrain from competing against the employer. To determine whether an employee is a fiduciary, courts will look at the role of the individual and consider whether the person exercised significant control and authority over the operations of the employer. If the employee is a fiduciary, a Court may find that the employee is restricted from competing unfairly against the former employer (e.g. soliciting the former employer's customers)

In Consbec, the Court found that Walker did not exercise significant authority and control. Despite his position as the area manager for Western Canada, Walker did not have influence over other Consbec divisions, was not privy to corporate decision-making, did not determine salaries or bonuses, did not have signing authority for company cheques, and reported his bids to his direct supervisor at all times. He was therefore not a fiduciary employee.

The Court also dismissed Consbec's alternative argument that Walker misused its confidential information. Consbec alleged that Walker misappropriated the Consbec client list and used that information to compete with Consbec. This argument failed, however, because Consbec was unable to prove even the existence of a client list, let alone that Walker had misused it.

Further, in the blasting and drilling industry, almost every project is awarded by bid and tender. As such, projects are usually awarded to the lowest bidder, not a regular contractor, so the very idea of a confidential client relationship in this case was difficult to fathom.

Damages for Lack of Notice of Resignation

In the only win for Consbec, and one that could be helpful for employers in similar circumstances, the Court found that Consbec was entitled to reasonable notice of Walker's resignation.

An employee is obliged to provide reasonable notice of resignation even if there is no written contract. Since Walker gave no notice, this was clearly unreasonable. The Court declined to determine what would have been reasonable notice in the circumstances since that would only lead to speculation as to what Consbec would have done if it had been given notice. Instead, the Court moved directly to the issue of damages and determined that the test for damages is one of opportunity, not loss of earnings. Walker, by giving insufficient notice, denied Consbec the opportunity to retain a replacement employee. The Court awarded damages of $56,116.11, which were expenses incurred by Consbec to (1) send an employee from Ontario to BC to cover Walker's position and (2) relocate another employee and his family permanently from Ontario to BC.

What This Means for Employers

This case is a reminder to always have an enforceable written employment contract providing for the terms and conditions of the employment relationship, including restrictive covenants and notice periods. As a matter of public policy, Courts will favour freedom of competition and mobility and be reluctant to impose restrictions on employees absent a clear legal basis to do so.

However, employers must keep in mind that restrictive covenants, and non-competition clauses in particular, are difficult to enforce and must be drafted carefully or else they risk being struck by courts. An employer should seek legal advice to make sure the employment agreement is properly drafted and provides sufficient protection in the case of a departing employee.

Note: This a reprint of an article by Dave McKechnie, Adam Kaukas, Tyson Gratton & Linda Yang of McMillan LLP.