The decision
In a ruling handed down on December 15, 2011,1 the Quebec Court of Appeal reaffirmed the right of every business to compete freely with its rivals, which efforts may include targeting, soliciting directly, and potentially hiring, a competitor's employees.
The facts
THQ, a video game developer and publisher, had opened a studio in Montreal in 2010.
In injunction proceedings filed by Ubisoft Entertainment, it was alleged that Ubisoft's former employee, Patrice Désilets, who had left Ubisoft for THQ, had breached the restrictive covenants in his employment contract by enticing three of his former colleagues to join the THQ team. The proceedings were not contested, and on January 26, 2011, the Superior Court issued an injunction calling on Désilets and THQ to respect the undertaking not to solicit.
Ubisoft subsequently amended its injunction proceedings to name an additional respondent, another former employee now working for THQ who was also alleged to have infringed his undertaking not to solicit by attempting to lure a former colleague away from Ubisoft.
On February 28, 2011, an initial interim order was issued against the said former employee and THQ, which order, with minor changes, was renewed as a safeguard order on March 10, 2011. On July 13, 2011,2 Madam Justice Lise Matteau of the Superior Court renewed the safeguard order a second time and an appeal from that decision was brought before the Quebec Court of Appeal. Unlike the first injunction issued against THQ and Patrice Désilets, the latter three orders, in addition to calling for the respondents to abide by the non-solicitation covenant of the employee concerned, also included a paragraph (paragraph (d)) prohibiting THQ from soliciting and hiring any employee of Ubisoft whom it knew to be bound by a non-competition clause, other than by using general recruitment techniques such as advertisements in the media or other similar methods aimed at a group rather than specific individuals.
The arguments of the appellant THQ
THQ submitted to the Court of Appeal that the judge in first instance had erred in granting paragraph (d) of the order issued against it on July 13, 2011, which paragraph enjoined THQ:
[Translation] to immediately cease and desist, directly or indirectly, from soliciting and hiring any employee working for the petitioner Ubisoft Entertainment Inc. that it knows is bound by a non-competition clause, other than through general recruitment techniques such as radio or television announcements or other similar methods directed at a group rather than at particular individuals.
THQ argued that such an order was not only imprecise as to the scope of the obligations imposed but also wrong in law. It submitted that paragraph (d) ran counter to its freedom to compete, and most importantly, required adherence to non-competition clauses that were unknown, that had not been filed in evidence, whose validity had not been subjected to analysis, and that were binding on employees who had not been identified.
THQ further argued that the judge who had renewed the safeguard order against it had erred in providing for the order to apply until judgment on the motion for interlocutory injunction, i.e., an indeterminate date, whereas the non-solicitation clauses of the employees concerned were set to expire, at the latest, on September 1, 2011.
The decision
In a unanimous ruling, the Court of Appeal allowed THQ's appeal and struck down the judgment of the lower court. The Honourable Justice Guy Gagnon, writing for the Court, resoundingly affirmed the right to compete freely, even aggressively. In his view, solicitation aimed at meeting legitimate business needs was lawful, as long as it did not seek to harm a competitor and destabilize its operations. In the absence of such behaviour, which would indeed amount to unfair competition warranting an order being issued to stop it, a business had every right to solicit the employees of a rival using a direct and targeted approach. Clearly, it was also at liberty to hire the individuals concerned, subject to any restrictions on their freedom to work that might validly exist. In this case, there was no evidence of any behaviour amounting to unfair competition. Just because there was a chance that some employees would leave Ubisoft for THQ, and because Ubisoft was worried about that happening, was not evidence of unfair competition but merely the result of competition that was healthy and completely normal. As the Court of Appeal noted, while THQ could, admittedly, be expected to engage in solicitation of Ubisoft employees in the future, it had not been established that it would do so in a manner that was excessive and in violation of the spirit of the freedom to compete.
The Court also clearly rejected any possibility of a prohibition on solicitation and hiring of unidentified employees bound by unknown non-competition clauses whose validity had not been proven. It wrote:
[Translation] As for the rest, even if all Ubisoft employees were bound by non-competition and non-solicitation covenants, which the evidence does not show to be the case, that in itself would not justify an order prohibiting THQ from soliciting them unless the validity of those covenants was established in accordance with the third paragraph of article 2089 C.C.Q. and unless it was demonstrated that THQ was trying to harm Ubisoft by encouraging the breach of those covenants.
Lastly, given the very significant consequences of the safeguard order for THQ, it was imperative that it be of short duration. In the circumstances, when THQ had already been compelled to comply with the order for four months, the lower court's decision to renew it had the effect of forcing THQ to accept Ubisoft's interpretation of the freedom to compete for an indefinite period of time, failing which it risked being cited for contempt of court – a situation the Court of Appeal considered unreasonable.
Conclusion
In its ruling, the Court of Appeal has clearly affirmed the right of every business to compete, even aggressively, with its rivals provided it does so in good faith and without the intent to disrupt a competitor's business. It is never lawful for an employer to encourage a new employee to breach a covenant with his or her former employer, but such covenants must also be valid and their validity needs to be proven in each case. Unless it resorts to unfair competition, a business cannot be prohibited from soliciting and hiring a competitor's employees, and under no circumstances can a business be prohibited from soliciting and hiring unidentified employees bound by unknown non-competition clauses whose validity has not been proven.
Footnotes
1 THQ Montréal inc. c Ubisoft Divertissements inc., 2011 QCCA 2344 (CanLII) (available in French only).
2 Ubisoft Divertissements inc. c THQ Montréal inc., 2011 QCCS 3568 (CanLII) (available in French only).
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