Insurance company granted injunction against former senior
insurance executive, barring the executive from soliciting clients,
recruiting former employees or disclosing confidential
An employer was recently successful enforcing a non-
solicitation and non-competition clause because it was not overly
broad and freely agreed to.
The employer was a large insurance brokerage offering a broad
range of commercial and consumer insurance to clients. In the
insurance context, the point of contact between client and the
company is a specialized sales representative who usually has
intimate knowledge of the inner workings of the business and the
needs and interests of each client. Due to this unique relationship
between representative and employee, it is common to place
provisions in employment agreements, which restrict the ability of
an employee, post employment, to compete with or solicit clients
from an employer in the event that an employee leaves an insurance
In the present case, the employee became a key person in the
marine insurance division, and was eventually appointed senior
vice-president of the division, an executive position. Upon being
appointed to this position, the employee's promotion was
subject to an employment agreement, prohibiting him from competing
with the employer, soliciting the employer's clients or
employees, or using the employer's confidential information for
a period of 12 months after leaving the employer.
The employee eventually resigned and asked the employer to sell
its marine insurance division to him which was refused. The
employee started his own business and aggressively solicited
clients and several former employees of the employer who resigned
and changed offices. The employer noted a substantial reduction in
profits from its marine insurance division and brought an
application for an injunction enforcing the non-competition
The Supreme Court of British Columbia's decision
The court reviewed the language of the clauses to determine
enforceability, noting that the close relationship that develops
between broker and client often leads to vulnerability on the part
of the employer. The court placed distinct emphasis on the economic
risk that the employer faced from the competing employee due to
this unique relationship. The employee had acted as a medium
between marine insurance clients and employer and employee had
voluntarily agreed to the clauses. However, the non-competition
clause was held to be unreasonable because the provisions were
overly broad as it would prevent the employee from doing any
function in any area of insurance brokerage. In addition, the use
of uncertain language such as "concerned with" and
"interested in" in conjunction with "in any business
or enterprise that competes with the company" were deemed to
be ambiguous and too broad.
The court held that the employer had established a prima facie
case for enforcement of the non-solicitation and confidentiality
clauses. Evidence supported the allegation that the employee had
solicited both clients and employees subsequent to his departure
and an injunction was granted against the employee for a period of
12 months following the termination of his employment. Furthermore,
the employee was ordered to return all confidential client
information and refrain from soliciting clients or recruiting
employees of his former employer.
What this means for you
The Supreme Court of British Columbia's decision regarding
non-competition clauses in Hub International (Richmond Auto Mall) Ltd. v.
Mendham, 2011 BCSC 1780 reflects a similar attitude
with regard to judicial interpretation of non-competition clauses,
particularly in an insurance context. The general consensus is
that, owing to the inherent vulnerability of employers in the
insurance sector from having their clients and information used by
former employees, courts will only uphold non-competition clauses
in employment contracts if they are carefully worded and not overly
As an employer, draft clear clauses in employment contracts. In
the event that a clause is drafted in a manner that is overly broad
or unreasonable, it will likely be held to be invalid and could
potentially result in adverse economic effects. It is better to be
prudent and diligent and protect business interests before a
potential risk arises.
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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