Non-competition clauses in employment contracts are difficult to
enforce in Canada. Courts tend to regard them as unreasonable
restraints on trade. They will not enforce them if they are
ambiguous. Nor will they generally use a "blue pencil" to
sever ambiguous words. This was made clear in the recent appeal
court decision in Veolia ES Industrial Services Inc. v.
Mr. Brulé was the President of Veolia ES Industrial
Services Inc. ("Veolia"). His three-year employment
agreement dated January 1, 2004 allowed him to resign on 180
days' notice. It had a non-competition clause that applied
following Brulé's departure, "for two years
commencing on January 1, 2007". Brulé
terminated the agreement early on July, 7, 2004. The Company paid
his salary until January 3, 2005. Later in 2005, Brulé
competed against Veolia for a public tender. He won. Veolia sued
him. They claimed that Brulé violated the non-competition
agreement. They sought damages equal to the profits that Veolia
lost under the tender.
The Trial Decision
The trial judge found in favour of Veolia. He decided that the
intention of the parties was to create a two-year non-competition
obligation that applied whenever the agreement was terminated. The
words "commencing on January 1, 2007" were found to be a
drafting error. The trial judge therefore severed these problematic
words from the agreement, following the Supreme Court of
Canada's test for "blue-pencil severance" as set out
in Shafron v. KRG Insurance Brokers (Western) Inc. (2009)
("Shafron"). By severing this phrase, the
relevant time period for the non-competition clause was broadened
to catch Brulé's actions.
The Law on Blue-Pencil Severance
The Supreme Court in Shafron had ruled that restrictive
agreements like non-competes are assumed to be unreasonable for
being in restraint of trade. Courts should only uphold them where
they are demonstrated to be reasonable. Enforceability will be
especially limited in the employment context because of the power
imbalance inherent in these contracts.
To resolve ambiguity in a non-competition clause, a court may
remove an ambiguous term. One way this is done is through
"blue-pencil severance", where the court erases the
ambiguous words. This can only be done so long as the meaning of
the clause is not altered, and only where the removed words are
clearly trivial and not part of the main agreement. Canadian courts
should only apply blue-pencil severance if the evidence shows that
the parties would have unquestionably agreed to the contract
without those words.
The use of this technique was at the heart of this case.
The Ontario Court of Appeal overturned the trial judge's
ruling. It ruled that blue-pencil severance could not be used to
save the non-competition clause.
The appeal court found that without deleting the words,
"commencing on January 2007," the clause as originally
drafted was unreasonable and unenforceable. Blue-pencil severance
could not be used to remove the words in question, since the
evidence showed that neither party would have agreed to the same
contract with those words removed. The words were therefore not
trivial and the meaning of the original clause would have been
altered. Therefore, the clause could not be corrected in the manner
the trial judge had seen fit. Moreover, as the clause would have
become effective only two years after Brulé ceased his
employment in 2005, it was therefore demonstrably unreasonable and
To summarize, neither party would unquestionably have agreed to
the amended clause without varying other areas of the contract, and
the clause as drafted would come into effect only two years after
Brulé actually quit. Therefore, blue-pencil severance could
not apply to minimize the scope of the clause as the employer
Take-Away for Employers
Non-competition clauses in employment agreements remain
difficult to enforce. Problematic wording in these clauses cannot
generally be corrected using blue-pencil severance, except in the
rarest of occasions. Only when the words at issue are truly
ambiguous, their removal would not alter the meaning of the clause
and the parties would unquestionably have agreed to the amended
clause when forming the contract.
The blue-pencil technique won't be used to sever aspects of
an unreasonable non-competition clause, in order to render it
The lesson for employers from Veolia v. Brulé is
that non-competition clauses need be drafted with utmost care,
considering the courts' continued preference for narrowing
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