Canada: Restrictive Covenants And Non Competes When Selling Or Buying A Business: A Fresh Analysis By The Quebec Court Of Appeal Leads To Anxious Questions

Covenants by the vendor, its former shareholders and/or key employees not to compete post-closing are part of the normal instruments available to protect the purchaser's substantial investment in the purchase of the goodwill and book of business when buying a "business" that is contact and relationship based and driven. However, we have certain restrictive provisions of the Civil Code of Québec ("C.C.Q.") affecting the content and enforceability of non-competes in employment relationships, in particular Arts. 2089 and 2095 C.C.Q.,¹ which were supposedly designed to redress the inherent imbalance in negotiating power between employers and employees. These provisions temper significantly and, in the latter case, deny enforceability of the non-compete, when the employee is terminated without cause, ostensibly to thus protect the employees' legitimate right to earn a living post-termination. When, as part of an acquisition, the Vendor's former shareholders and/or key employees continue to work for the purchaser, and are later discharged or resign, what rules govern whatever restrictive covenants may have been executed? Does it matter whether the employees in questions have been provided with "reasonable notice" or not?

Art. 1377 C.C.Q. provides that the general rules set out at Articles 1377-1708 C.C.Q. apply to all contracts, subject to "special rules for certain contracts which complement or depart from these general rules, found in Title Two". Title Two (Arts. 1708 to 2643 C.C.Q.) concerns "nominate contracts", of which the contract of employment (Arts. 2085 to 2097 C.C.Q.) is but one, and the contract of sale, governed by distinct provisions of the C.C.Q., is another. Do the rules set out at Arts. 2089 and 2095 C.C.Q. "depart from" these general rules of contract or do they "complement" them? If they constitute "special" and "exceptional" rules, do they apply restrictively only to non-competes contained in the employment contract itself, (or at most to those found in contracts that are necessarily ancillary thereto), or do they impact non-competes wherever they are found as a consequence of an employment relationship being created and/or ended? What if the employment relationship, and hence the employment contract, is not only ancillary to but results from and constitutes a condition sine qua non of the sale of the business?

Traditionally, courts have been far less reluctant to enforce expansively written non-competes when they are part and parcel of the sale of a business rather than when they arise solely from an employment relationship.² Where there is continued employment post-closing, for a substantial period of time, and the trigger for the non-compete is the termination, does the paradigm change and if so, how and why? If the commencement of the non-compete is not the date of sale but rather the end of such post-closing employment, does that change the analysis? In enforcement proceedings, is the Court entitled to look beyond where (i.e., in which contract) the restrictive covenant appears so as to take account of its true purpose?

In Guay Inc. v. Payette, 2011 QCCA, a divided panel of the Quebec Court of Appeal addressed some of these issues, but in the view of this practitioner with mixed results!.

The Facts:

In 2004, Appellant bought a business engaged in renting construction cranes throughout Quebec. Respondent was one of two shareholders of the vendor. The Act of Sale contained both non-compete and non-solicitation clauses.³ Respondent Payette, and one Lafortune, the other shareholder of the vendor, intervened personally in the sale so as to guarantee, inter alia, the respect of the restrictive covenants provided therein. Articles 10.1 to 10.4 of the "Acte de Vente" [ Deed of Sale] provided that with respect to the vendor companies, such covenants would run "pour une période de cinq (5) ans à compter de la clôture" – [for a period of five (5) years from the closing date] but with respect to the Interveners they would run "pour une période de cinq ans à compter de la date à laquelle un intervenant cesse d'être à l'emploi, directement ou indirectement, de l'Acheteur." ["for a period of five years from the date that an Intervener ceases to be employed directly or indirectly by the Purchaser,.]. The non-solicitation was phrased to prohibit not only solicitation but also "doing or attempting do to business". Both clauses provided that "le territoire pour lequel cette clause de non-concurrence s'applique pour la période de temps ci haut mentionnée réfère à la Province de Québec." [the territory for which this non-compete clause applies for the period of time mentioned above refers to the Province of Québec] [Author's translation].

Post-closing, Respondent first was required to and did in fact work for a period of six (6) months as a consultant to the purchaser. While his possible employment thereafter was envisaged by the parties, as Thibault J.A., in dissent, pointed out, Respondent Payette could, but was not required to, pursuant to the sale, become an employee of the Appellant at the end of the consultancy. Although not entirely clear from the facts, one might assume, perhaps, that the consultancy was in effect a "workout" of part of the purchase price.

Once the consultancy expired, Respondent was employed initially under a fixed term contract, and, upon its expiry, under an employment contract of indefinite duration, all this from April 2005 to August 2009, when he was discharged "without cause", styled "serious reason" in the Civil Code, from his position as Director of Operations. Neither employment contract contained or made reference to any restrictive covenant. While Payette's discharge in August 2009 was originally characterised by Appellant as being made "for cause", by the following December, the parties apparently settled that part of the issue, Appellant paying Payette and Lafortune, some $150,000 in severance.

Furthermore, while the settlement did not itself contain any additional restrictive covenant, at that time, Payette is said to have asked, Appellant's principal whether he had any objection to Payette working for a firm that used construction cranes but was not itself engaged in renting them out, implicitly recognizing that there were limits on where he could legitimately work.

Some months later, in March 2010, Payette joined a multinational direct competitor to Appellant. More than five (5) years had expired since closing, but only eight (8) months since his discharge. Appellant, in short order, lost seven (7) of its key people as well as a number of clients that Respondent Payette had dealt with.

Appellant sought to enforce the restrictive covenants found in the "Acte de vente" and in the Intervention. It was successful in obtaining first a provisional injunction, and then a safeguard order valid until trial, but was refused final injunctive relief, the Superior Court, applying, inter alia, Art. 2095 C.C.Q., holding that since Payette had been discharged "without cause", the restrictive covenant could not avail.

The Majority Judgment:

In appeal, Chamberland J.A., with whom Fortin J.A. agreed, held that the fact that Respondent's employment subsequent to the sale of the business followed the first period which he acted as Consultant, did not change the paradigm one iota. As he put it:

Chamberland J.A. noted the difference in the treatment of a restrictive covenant contained in the sale of a business or of shares from that contained in an employment contract, adding: "This difference derives from the disequilibrium of forces that generally hallmarks the employer-employee relationship during negotiation of an individual contract of employment, which is generally not the case in a vendor-purchaser relationship in a commercial context"⁴. [Author's translation].

He noted further that the rules set out at Art. 2089 and 2095, "are specific to the contract of employment and have no equivalent in matters of sale of businesses. With respect to undertakings not to compete, analogous criteria, but criteria that are far more supple than those specific to the employment contract have been set out by the jurisprudence."⁵ [Author's translation].

Chamberland J.A. allowed that: "If the covenants are an integral part of the employment contract, they could not avail in Appellant's favour because it had terminated the employment contract without serious reason".⁶Finding that Respondent Payette and his former co-shareholder Lafortune undertook not to compete as a result of the sale of their business to Appellant, and not because of post-acquisition employment from his point of view, the Trial Judge had erred materially in deciding the issue in accordance with the more restrictive rules governing employment contracts.

In terms of context, he noted that these undertakings were conditions sine qua non for Appellant's spending $26,000,000 to purchase the shares of Groupe Fortier. Post-acquisition employment changed nothing of this reality. For Chamberland J.A., "it seems clear that they...[the Intervenors]...subscribed to undertakings of non-competition and non-solicitation simply because of the advantages that they stood to gain from the sale of their shares and not from any eventual employment relationship."⁷ [Authors translation]. Neither the employment contracts nor the consultancy agreements contained any restrictive covenants. Only the sale documents did. Indeed, use of the phrase "In consideration of the sale" which preceded the restrictive covenants, predicated and confirmed that the non-competes were motivated by nothing else than the sale of shares.

Chamberland, J.A. viewed the phraseology used in the covenant not to compete and its reference alternatively to five (5) years from "closing" or five (5) years after the end of any subsequent employment relationship as being quite reasonable a) because, while the consultancy was obligatory and definite, the employment was entirely facultative and b) "because the vendors, as long as they were in the employ of the purchaser, profit twice over, once from the sale of shares (the capital gains received from the Purchaser on the one hand and the wages and bonuses that come with their employment, on the other hand), while continuing to entertain continued business relations with their clients at the purchaser's expense."⁸ [Author's translation and emphasis].

In his view, so long as the Interveners remained in the purchaser's employ, in the same positions they held prior to the sale – as was the case with Payette – the purchaser would be unable to build personal relationships of any substance with the clientele that the vendor continued to serve, as if there was no change in the ownership of the business. Using the date of discharge from employment as the trigger made perfect business sense! In his opinion, the more restrictive rules and/or considerations set out at Arts. 2089 and 2095 C.C.Q. should not apply automatically simply because Respondent was in the employ of Appellant when the relationship between them broke down on April 3, 2009.

Finally, Chamberland J.A. noted that Art. 2095 C.C.Q., had been introduced into Quebec civil law as a rule of equity designed to re-establish a semblance of equilibrium between employer and employee that the superior economic weight of the employer versus the employee frequently negates or puts into question. This recalibration does not exist as a matter of principle in commercial matters.

Furthermore, while recognizing that the rules which flow from employment contracts have at times been applied to non-competes granted by minority shareholders, because they are in some ways as disadvantaged vis-à-vis a majority shareholder as is an employee vis-à-vis an employer, nothing indicated that the negotiations that proceeded the sale of shares of Groupe Fortier of which Payette was a shareholder to Guay Inc. were not carried out between equals.

On the other hand, while finding the argument that the non-compete and non-solicitation undertakings had a hybrid origin, seductive, he dismissed this point of view out of hand because it failed to take account of the reference in clause 10.1 that the undertakings were "in consideration of the sale". In fact, he found it surprising that an undertaking not to compete could be said to have been subscribed to by virtue of an employment relationship which, beyond the initial consultancy stage, designed to last only a number of months, was itself, entirely uncertain. He then proceeded to examine the reasonability of the undertakings strictly on the basis of the normal rules that govern restrictive covenants in commercial matters, and finding them entirely reasonable, he issued injunctive relief against both Payette and his new employer.

The Dissent

Thibault J.A.'s dissent proceeds from a fundamental contrary assumption, namely that while the Consultancy Agreement which followed the sale was to be treated as a hybrid, the employment contracts that intervened in May of 2005 and, thereafter, were autonomous employment agreements. She was prepared to apply the non-competes, much like the trial judge, in the following way. She linked the first alternative trigger of five (5) years from the date of closing of the sale as protecting the vendor against "any and all types of competition". The second trigger of five (5) years, counting from the last day of employment, protected the vendor from competition but only in respect of Payette and Lafortune having been its employees.

Like the Trial Judge, she viewed the undertakings not to compete not as a single clause with alternative triggers but rather, in effect, as two separate clauses having distinct purposes. On the one hand, the Purchaser would be protected against any form of competition – "toute concurrence" for five (5) years from closing. That protection derived in her view, from the sale of the business.

The Purchaser was to be protected against unfair competition by the Interveners, qua ex-employees – "concurrence des salaries" – from the date of their termination, but subject to the rules under Arts. 2089 and 2095 C.C.Q. applicable to employment-related restrictive covenants Furthermore, she held that the period of five (5) years from date of closing (which had in fact already elapsed) also linked to the original consultancy period, would permit the purchaser to adapt to the marketplace without having to face competition both from the vendors and the Interveners.

From her perspective, this analysis had the advantage of recognizing and applying the public order nature of Art. 2095 C.C.Q. ⁹As she put it, "such reasoning avoids that, in a true employment relationship, public order provisions of the Civil Code be rendered nugatory for the simple reason that the employment contract is ancillary to a sale of shares which intervenes contemporaneously. Such reasoning, where an employment contract is concluded and/or renewed after a sale of shares, prohibits exempting the employer from the respect of obligations contained in the Civil Code." [Author's translation]

In this respect, she also wrote: "In the situation where the "Purchaser Employer" fails to respect its obligations as an employer towards its employee and proceeds to terminate without serious reason, it is just that it not be able to avail itself of restrictive covenants as Art. 2095 provides." [Author's translation and emphasis].¹⁰

Finally, in referring to the Supreme Court's decision in Shafron [NTD add footnote with citation] and particularly, to passages therefrom that she underlined, Thibault J.A. wrote: "I take from these teachings of the Supreme Court that when the parties to a commercial transaction conclude a true employment contract, it is the pertinent provisions regarding such a contract that apply." [Author's translation]¹¹

Neither Judgment is Without its Weaknesses:

While, at first blush, the result obtained in the majority opinion of Chamberland and Fortin, JJ would seem to make good business sense, in a substantive way the analysis is somewhat contradictory. Chamberland, J.A. focuses on the motivation underlying the Interveners' subscription to the non-compete. As such, the situs of the non-compete, whether in the employment contract or in the Sale Agreement is seen to be irrelevant. Yet, in the same judgment, he states unequivocally that had the non-compete appeared in the employment contracts, and not in the Deed of Sale, there would be no question that Art. 2095 would bar its avail by the Appellant.

With respect, one cannot be partially pregnant. Either the purpose for which the restrictive covenant was given is the controlling factor, making the situs irrelevant, or the situs is the controlling factor, making the purpose irrelevant.

If the provisions of Arts. 2089 and 2095 are indeed, as Chamberland, J.A. said, specific to the contract of employment, then pursuant to Art. 1377 C.C.Q. they would not and should not control non-competes contained in other contracts, and in particular sales contracts. Specificity implies a necessarily restrictive application to the subject matter that the provision is or was designed to affect.

On the other hand, Art. 2095 as drafted is not specifically restricted to non-competes found in employment contracts. Restrictive covenants might appear in by-laws of privately held companies where the shareholders also are or become employees of the company. For instance, the Supreme Court held in Senay v. Montreal Real Estate Board, [1980], 2 S.C.R. 555 that the by-laws of a company incorporated pursuant to the Companies Act (Québec), constituted a form of shareholders' agreement. Since a shareholders' agreement is a separate and distinct contract from the employment contract, would Art. 2095 C.C.Q. apply in such case? Would it depend on whether the shareholder status was obtained because of a contract that is ancillary and subsequent to the employment agreement, such as a stock-option plan? Would it depend upon which contract is the accessory and which contract is the principal? While Chamberland J.A.'s analysis is attractive, it is also problematic in each of these respects.

On the other hand, the dissent's analysis is no less problematic, indeed perhaps even more so. It clearly seems to view the language of the Deed of Sale to the effect that the non-compete and non-solicitation undertakings are given "in consideration of the sale" as being pure "boiler-plate" or "clause de style" – a matter of pure form, with no substance. It furthermore distinguishes between types of competition -- "toute concurrence" [any competition] on the one hand and "concurrence des salariés" [competition by employees] on the other hand – without referring to any legal basis for such distinction.

Most respectfully, the analysis of the whys and wherefores of Art. 2095 C.C.Q is also troubling. The purpose of Art. 2095 C.C.Q. is explained as being to punish a recalcitrant employer for having wrongfully terminated an employee and somehow violated his contractual obligations. Thibault, J.A.'s analysis seems to reflect a line of common law cases recently applied by the Alberta Court of Appeal in Globex Foreign Exchange Corp. v. Kelcher: Docket: 1001-0071 A.C., where Hunt J.A. wrote:

The problem with that analysis is that:

1. In Quebec, termination by reason of redundancy, even with reasonable notice or pay in lieu thereof is nonetheless considered to be without serious reason;¹³
2. Under Quebec law, an employer always has the right set forth at Art. 2091 C.C.Q. to terminate the employment of an employee, and particularly, a senior executive, by providing reasonable notice. It is therefore no repudiation of any contract but rather the exercise of a right recognized by law that would trigger the death knell of the covenant.

When an employer therefore terminates the employ of a senior executive and provides him with reasonable notice, as is his right pursuant to the civil law, why then should that employer be penalized for the exercise of such right? Since the employee does not enjoy a right to perpetual employment, how can it be said that his rights in such circumstances were ever prejudiced? Why then should Art. 2095 apply? Yet it does! Since the same term "serious reason" appears in each of Arts. 2091, 2094, and 2095 C.C.Q., the standard rules of interpretation would posit that they received the same meaning throughout.

On another plane, I wonder whether reference by both judgments to Common Law jurisprudence is or was appropriate in the circumstances? Quebec Civil Law, while it may draw upon the experience of other jurisdictions, is self-contained. Caution against importing precedents from Common Law jurisdictions, particularly in labour matters, has been noted before in our jurisprudence. In Breeze v. Federal Business Development Bank, C.S.M. 500-05-021058-829, Mr. Justice Fraser Martin noted at pp. 5-6:

"...In questions arising from contracts of employment for an indeterminate period, our law accepts that the employer may terminate at will, provided that he favours the employee with prior reasonable notice. The jurisprudence has also endorsed the principle that the employer may substitute the period of notice with an indemnity in lieu of same. While our Courts have recently tended to refer to decisions from the Common Law Provinces, I think that these decisions should be treated with care. Although the approach taken in the Common Law Provinces is, from a practical point of view, similar to ours, it is pertinent to bear in mind that there is a "wrongful" element in dismissal to which these Courts consistently refer. This has its historical basis in the Common Law. Perhaps, because of the presence of this "wrongful" element, inherent in any decision to dismiss an employee, the Courts, in the other Provinces, may in some cases, have given disproportionate weight to the time required to find employment in calculating the notice due or, in the alternative, the indemnity to which the dismissed employee is entitled..."

Indeed, judgments of the Supreme Court of Canada itself have cautioned against reliance on common law precedents.¹⁴ Certainly, reliance upon Shafron v. K.R.P. Insurance Brokers (Western Inc.), [2009], 1 S.C.R. 157, as determinative in some way, as Thibault J.A. would have it, is in my view is particularly awkward. In Shafron, Appellant sold his business to K.R.P. Western, who in turn sold the business three years later to InterCity. Shafron himself, received no payment for goodwill when K.R.P. Western sold the shares to InterCity.

The contract containing a restrictive covenant was concluded in 1998, seven years after the resale and eleven years after the initial sale.

Hence, when the Court said that the employment contract concluded in 1998 was completely independent of the agreement of sale of 1987-1988, that statement must be taken to reflect the particular facts in that case. Moreover, in Shafron, the restrictive covenant was in the contract of employment of 1998. It was at best in that context that the Court wrote that: "The fact that the restrictive covenant in the 1998 employment contract originated in the 1988 agreement has no bearing on the interpretation of the 1998 employment contract. The 1998 agreement, is an employment contract and, as found by the trial judge, the reasonableness of the restrictive covenant must stand up to the more rigorous test applicable to employment contracts."

The facts in the case before Thibault, J.A. were materially different, in that the restrictive covenant resided in the sale agreement. Reliance on judgments emanating from common law, that are distinguished on the facts, even if they are at the level of Canada's highest Court, remains open to challenge.

Resulting Practical Principles:

Leave to appeal to the Supreme Court of Canada was granted on May 17^th last. In the "fullness of time", we will have the benefit of the wisdom of Canada's highest court. On the other hand, even without a definitive judgment the following practical guides to best practices would seem to flow from the judgment:

1. Linkage between the sale and the restrictive covenant is absolutely essential to attempt to avoid rigorous application of the more restrictive rules that derive from employment law. That linkage should be clear and unequivocal and be reflected in the text of the restrictive covenant. Leaving aside whatever tax implications this may arise as a result, and simply from the limited perspective of avoiding Arts. 2089 and/or 2095 C.C.Q., payment for the shares should be in consideration, at least in part, of the restrictive covenants;
2. Preferably, the restrictive covenant should be in the sales agreement itself with the vendor's shareholders and/or key personnel, if they are directly or indirectly to benefit from the sale, as interveners and guarantors of properly worded restrictive covenants;
3. Whatever language that can be incorporated into the contract that would confirm the equality of bargaining power between the signatories at the time of subscribing to the restrictive covenant would certainly be helpful;
4. Determine whether what is most important is protecting "trade relationships" rather than limiting the ex-employee's employment opportunities post-termination. Determine whether robust non-solicitation clauses and/or non-compete that list those specific clients would do the trick. Such robust non-solicitation clauses can be used to complement the non-compete and offer the advantage of being generally outside the purview of Arts. 2089 and 2095 C.C.Q., unless they really bear all the hallmarks of a non-compete, as the one in the Guay Inc. case apparently did;
5. Remember that the line between non-solicitation and non-compete may be sometimes obscure, so draft accordingly;
6. When terminating, consider doing so with more than reasonable notice, subject to a full blown "transaction" contract, consistent with Arts. 2631 C.C.Q. which would contain its own restrictive covenants, tailored to the situation as it then exists. Since a "transaction" is a separate nominate contract, Art. 2095 would not seem to apply. Even accepting that Art. 2095 C.C.Q. is a matter of public order, pursuant to the judgment of the Supreme Court in Garcia Transport v. Royal Trust,¹⁵ there would be no problem for the employee to waive whatever rights he has thereunder post-termination, as he would already be in possession of the right, which would in any case crystallize upon discharge;
7. Perhaps separate restrictive covenants, one with a fairly lengthy term commencing on the date of the sale and contained in the sales agreement, and, the other commencing on the termination of employment and contained in the employment agreement, should be considered, both with severability provisions, although admittedly this raises the issue of "clarity" in the event that termination occurs when the individual is discharged at a time when either delay could apply;
8. Recognize that non-competes are but one tool amongst others, not a panacea. In any case, like all non-competes, they will be enforced subject to the conditions that pertain at the end of the relationship. It is at that point that they must be re-examined. Simply put, even if the non-compete is in the sales agreement, do not take it as given that it will be enforced whatever may be the factual situation that then pertains.

Conclusion:

While a critique of a judgment of an appellate court, particularly one that is to be reviewed by the Supreme Court, is not to be undertaken lightly, almost 40 years at the management labour bar may allow this author some editorial licence in this regard.

And if my opinions differ from those of my betters, well then, most respectfully, I differ with deference.

Footnotes

1 Art. 2089 : The parties may stipulate in writing and in express terms that, even after the termination of the contract, the employee may neither compete with his employer nor participate in any capacity whatsoever in an enterprise which would then compete with him.

Such a stipulation shall be limited, however, as to time, place and type of employment, to whatever is necessary for the protection of the legitimate interests of the employer.

The burden of proof that the stipulation is valid is on the employer.

Art. 2095: An employer may not avail himself of a stipulation of non-competition if he has resiliated the contract without a serious reason or if he has himself given the employee such a reason for resiliating the contract.

2 Elsey v. J.G. Collin Inc. Agencies Ltd., [1978], 2 SCR 916 (918-919); Shafron v. KRG Insurance Brokers (Western) Inc., [2009], 1 SCR 157 (Pars. 18, 19, 21-23); Both cases are referred to as authority for each of the opposing judgments in Guay Inc. v. Paquette. Both judgments derive from common law jurisdictions. Interestingly, though the Quebec Court of Appeal has in its own jurisprudence, itself distinguished between the two situations, no reference is made thereto by either judge.

(See inter alia Raymond Leboeuf, Groupe Conseil Genivar et al c. Groupe S.N.C. Lavalin Inc. et al, C.A.Q. 200-09-000644-944, jugement inédit de la Cour d'appel du 10 février 1999, jugement de l'Honorable Juge Nus, paragraphes 54 et 55; Groupe Graphisan Ltée c. Gravel, 1993 R.D.J. 181; AZ-92012022, C.A.M. 200-09-000150-919; pp. 6-7; Burmac Corp. c. Entreprises Ludco Ltée, 1991 R.D.L. 304, 1991 R. L. 445, AZ-91011348, C.A.M. 500-09-001321-868, p. 13);

3 Since the non-solicitation clause included a prohibition against carrying on or attempting to carry on business, this was therefore viewed by the Superior Court and, to some extent, by the dissenting judge, as a second non-compete, which was subject to the requirements of Art. 2089 C.C.Q.

4 Par. 45;

5 Par. 49;

6 Par. 50;

7 Par. 54;

8 Par. 61;

9 As noted in Isidore Garon Ltée v. Tremblay, [2006] 1 SCR 27, a provision that is of public order may be of "public order of direction" the benefit of which can never be waived, or of "public order of protection", the benefit of which can only be waived once the beneficiary of right in question is already in possession of it. The right to reasonable notice in the event of discharge without "serious reason", pursuant to Arts. 2091-2092 C.C.Q., has been viewed as being of "public order of protection". Stipulating, in the employment contract the maximum amount of notice pay to which an employee might be entitled upon termination will not estopp the courts from examining the "reasonability" of such amount post-termination, because any claimed renunciation to such public order right by way of the employment contract would have been made before the employee was in possession of the right.

10 Par. 126;

11 Par 140;

12 Hunt J.A. continued at pars. 54, 55 and 56:

"[54] I am not persuaded it is appropriate to depart from this long-settled principle of employment law. Indeed, there are valid reasons for excusing a wrongfully dismissed employee from compliance with restrictive covenants. Most particularly, to hold otherwise would reward employers for mistreating their employees. For example, an employer could hire a potential competitor, impose a restrictive covenant on the employee, then wrongfully dismiss her a short time later and take advantage of the restrictive covenant. This would be a highly effective, but manifestly unfair, way of reducing competition. A second justification (alluded to by Simon Brown L.J. in Rock Refrigeration) may be that enforcing a restrictive covenant in the fact of wrongly termination prima facie negates the consideration (whether continued employment or something else) given by the employer to the employee when she accepted the restrictive covenant. Said another way, because the employment was prematurely and wrongfully terminated the employee will not "have received, during the period of his or her employment, an extra amount of remuneration for having conceded to the bound by the restraint in the contract": Employment Law in Canada at §11.48.

[55] There is an additional reason why wrongful dismissal ought to relieve an employee from compliance with covenants that restrict future employability. A wrongfully terminated employee is entitled to damages, but a defendant employer can argue that damages ought to be reduced because of the employee's unreasonable failure to mitigate the loss by taking other employment: Red Deer College v. Michaels, [1976] 2 SCR 324, [1975] 5 WWR 575. The defendant's burden of demonstrating a failure to mitigate is onerous, however, because although in breach, he is demanding positive action form the innocent party: Cheshire, Fifoot and Furmston at 683. Defendants cannot complain of a failure to mitigate caused or materially contributed to by their own actions: 2438667 Manitoba Ltd v Husky Oil Limited, 2007 MBCA 77, [2007] 9 WWR 642 and 654.

[56] if a wrongfully terminated employee is prevented from doing similar work because of a restrictive covenant, the ability to mitigate will be severely constrained. In many such cases, the employee will be unable to mitigate damages until the expiry of the restrictive covenant and will be entitled to damages for the entire period of the covenant. The entitlement to damages might well be of a similar magnitude to the damages claimed by an employer based on a breach of the restrictive covenant."

13 See inter alia : Mulhearn v. Bombardier Inc., C.S.M. 500-17-006343-993, p. 10; Lefrançois v. Disca Inc., C.S. Longueuil 505-17-000316-986. Indeed, in Degagné-Bolduc v. Distribution Inc., C.S. Chicoutimi 150-17-000951-050, it was held that short of proof of « force majeure », economic grounds do not constitute "serious reason" for purposes of either 2091-2092, 2094 or 2095 C.C.Q.; In Sénécal v. CEGEP du Vieux-Montréal, 500-17-048884-095; Crête J.C.S., dated May 11, 2012, the Superior Court reiterated that the term "serious reason" has the same connotation as "just and sufficient cause" and that the resiliation of an employment contract, dealt with at Arts. 2091-2092, 2094 and 2095 C.C.Q. include not only disciplinary discharges but all forms of unilateral resiliation of employment relationships. (See pars. 62-73);

14 Rubis v. Gray Rocks Inc. Ltd., 1982, 1 SCR 452, per Beetz J. at 468-469, citing Migneault J. "...the civil law is a complete system in itself and must be interpreted in accordance with its own rules."

15 [1992], 2 SCR 499;

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