In the case of , the Ontario Court of Appeal recently confirmed
that the severance of ambiguous terms in a non-competition or
non-solicitation restrictive covenant will only be permitted on
rare occasions. In the 2009 Supreme Court of Canada decision in
KRG Insurance Brokers (Western) Inc. v. Shafron, the court
stated that severance of ambiguous restrictive covenants takes two
forms: (i) notional – the reading down of a contract term
to make it legal and enforceable; and (ii) blue pencil –
the removal of part of a contract term. The court confirmed that
blue pencil severance of an ambiguous restrictive covenant will
only be permitted where the portion being removed is trivial.
In the Veolia v. Brule decision, the court determined
that the parties to the non-competition covenant would not have
agreed to remove the words which were ambiguous, without varying
other terms of the covenant. Justice Hoy, writing for the court,
found that the ambiguous words were not trivial, as they went to
the duration of the restriction (one of the most important parts of
a non-competition covenant). As a result, the court overturned the
trial judge's finding that the non-competition covenant had
been breached.
This case is the latest in a long line of Canadian decisions which
make clear that restrictive covenants are not viewed favourably by
our courts and will generally be overturned other than in special
cases. If restrictive covenants are critical for your organization,
seek legal advice and try to ensure that there are no ambiguities
in the agreement, as the courts will not go out of their way to
help cure those ambiguities.
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