Canada: Can The Refusal To Sign A Non-Competition Clause Constitute A Just And Sufficient Cause For Dismissal?

INTRODUCTION

In Jean c. Omegachem inc.¹, a recent decision of the Court of Appeal, the Court held that an employee's refusal to sign a non-competition agreement during employment is not a just and sufficient cause for dismissal.² Although the employer had discussed the non-competition agreement with the employee at the time of hiring, it had presented it to the employee only three years after he had started working.

THE FACTS

In 2002, Patrick Jean was hired by Omegachem Inc. ("Omegachem"), a company that specializes in organic chemistry and that conducts business with the world's leading pharmaceutical corporations.

When he was hired, Mr. Jean was told that he would have to sign a mandatory confidentiality and non-competition agreement, which was a requirement for all of the employees. However, when he began working, Mr. Jean had only signed a confidentiality agreement. He was asked to sign a non-competition agreement three years later. Initially, the agreement was for 24 months and applicable in Canada, the United States and Europe. Mr. Jean refused to sign the agreement unless he received severance pay equal to 24 months' salary. Omegachem put its draft agreement on hold.

A year and a half later, Omegachem presented Mr. Jean with a revised draft of the non-competition agreement. The proposed agreement was for 12 months but applicable worldwide. Mr. Jean refused to sign it. Omegachem sent him a demand letter demanding that he signs it and alleging that his refusal to do so would jeopardize their relationship of trust. Mr. Jean maintained his refusal to sign the agreement unless Omegachem agreed to compensate him financially. Omegachem refused.

Omegachem dismissed Mr. Jean in April 2007. The following month, Mr. Jean filed a complaint with the Commission des relations du travail ("CRT") under section 124 of the Act respecting labour standards.³

THE COURT OF APPEAL DECISION

The issue before the CRT and the Superior Court, the two lower-level decision-making authorities, was whether Mr. Jean's refusal to sign the non-competition agreement proposed by Omegachem was a just and sufficient cause for dismissal. The CRT answered that question affirmatively and its decision was upheld by the Superior Court on judicial review. However, the Court of Appeal reversed the Superior Court decision and quashed the two CRT decisions.

When Mr. Jean started working with Omegachem in 2002, no non-competition agreement was presented to him. It was only in 2005 that Mr. Jean was asked to sign such an agreement. The Court of Appeal was of the view that in order to hold, as did the CRT, that Mr. Jean had breached a fundamental condition of his contract of employment, the non-competition agreement must have been submitted to him when he commenced his job, as provided for in his contract of employment. The Court of Appeal explained that because the CRT did not consider these specific facts, its decision was not well-founded.

The Court of Appeal was of the view that the CRT should have also considered the formal requirements of article 2089 of the Civil Code of Québec⁴ (the "C.C.Q."), which specifically provides that in order to be valid, a non-competition clause must be stipulated in writing and in express terms. Furthermore, according to the law of contracts, for contractual obligations to be valid, they must be determinate or determinable.⁵ As such, Mr. Jean could not have legally bound himself without knowing the scope of the obligation to which he would have been subjected. According to the Court, by failing to consider these statutory provisions, the CRT made a "proposition that is unacceptable in law".

Lastly, the CRT should have considered the legality of the non-competition agreement with regards to article 2089 C.C.Q. On its face, the second version of the agreement was problematic regarding the territory it covered, i.e., "everywhere in the world". According to article 2089 C.C.Q., a non-competition clause is valid only if it is limited as to time, place and type of employment. As such, the Court of Appeal, explained that a clause is not limited as to place if it applies to "everywhere in the world". Therefore, the CRT could not reasonably conclude that Mr. Jean's refusal to sign the non-competition agreement constituted a just and sufficient cause for dismissal since its validity was prima facie questionable.

Considering that the dismissal of an employee is a serious matter with important consequences, the Court explained that an employer can unilaterally and without prior notice terminate a contract of employment only if it can be shown that it has serious reasons or just and sufficient cause for doing so. However, the decision to dismiss, without notice, an employee who refuses to sign a non-competition clause while employed, which is presented to him for the first time three years after he was hired, is not a just and sufficient cause for dismissal. If Omegachem attached such importance to the non-competition agreement to the extent that it chose to dismiss an employee who refused to sign such an agreement, it could only do so by compensating that employee.

COMMENTS

This Court of Appeal decision highlights a general rule of contract law, which states that a person is not bound to perform an obligation without knowing the terms of that obligation or without the obligation being "determinate or determinable". In addition, when a contract of employment obligates an employee not to do something, that obligation must be reasonably identified. Needless to say, the content of the obligation itself must not be contrary to the law. Omegachem should have presented the non-competition agreement to Mr. Jean at the time of hiring, and not three years later, and the agreement should have respected the parameters established by article 2089 C.C.Q. Lastly, this judgment emphasizes that it is in an employer's best interest to strategically plan its non-competition and non-solicitation agreements.

Footnotes

1 2012 QCCA 232 (C.A.).

2 This judgment overrules the two decisions rendered by the Commission des relations du travail (the "CRT") (2009 QCCRT 0076 and 2009 QCCRT 0368) as well as the judgment rendered by the Superior Court of Québec (2011 QCCS 1059 (C.S.) in this case.

3 R.S.Q., c. N-1.1.

4 S.Q., 1991, c. 64.

5 Article 1373 C.C.Q.

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.