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Post employment restrictions can be tricky to enforce. But
if drafted properly, they can be very valuable. As one
Alberta employer recently discovered in ADM Measurements Ltd. V. Bullet Electric Ltd,
relying on implied fiduciary duties to do the job of contractual
restrictions can be a pricey gamble.
Background
The employer, ADM Measurements Ltd.
("ADM"), was an electrical and
instrumentation company servicing oilfield facilities throughout
northern Alberta. ADM operated by hiring private contractors
to do much of their work. In 1997, ADM entered into a verbal
agreement with a particular contractor, Greg Young. Although
the terms were never formalized, it was agreed that if Young
continued to work for ADM and grow the company, he would later have
the right to buy ADM.
ADM and Young eventually had a falling out. ADM then informed
Young that he no longer had the right to buy the company.
Young left ADM and started up a competing company, Bullet Electric
("Bullet"). The rise of Bullet spelled
the end of ADM in the geographic areas where the two companies were
competing. Bullet profited, eventually driving ADM out of
business. ADM brought a lawsuit against Young. It alleged
that he unlawfully competed with ADM, solicited their employees and
unjustly enriched his own company. All of this was said to be
a breach of his fiduciary duty or duty of trust to ADM.
The Judgment
The Alberta Court of Queens Bench rejected ADM's
claim. It ruled that Young owed ADM no fiduciary duty.
The Court stated that such duties would exist only if the
relationship was one of employer-employee and then only in limited
circumstances.
Young's integration with the organization and his
opportunity for profit meant that he was really an ADM employee,
not a contractor. But Young was not in a fiduciary
position. The Court found no evidence that Young undertook a
duty to act in the best interests of the company. In
addition, despite the promise that he would one day be able to
purchase ADM, the tight control wielded by ADM's owner meant
that Young did not have a significant and senior role with the
organization. This lack of fiduciary duty put a
"bullet" to ADM's claims. Adding insult to
"bullet wound", Young was awarded over $175,000 in
damages for his counterclaim relating to unpaid employee
bonuses.
Take-Away Points
This case demonstrates the importance of defining the terms of
an employment agreement, including post-employment restrictions,
explicitly through contract. These may include
confidentiality and non-solicitation obligations and, in limited
circumstances, non-competition agreements. Had ADM entered into
reasonable and enforceable restrictive covenants with its
employees, it may have been able to recover damages when one of its
former employees solicited its employees and customers. Given
the limitations to common law fiduciary duties, restrictive
covenants provide valuable protection to employers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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