The highest Court in the Country has examined the rules
applicable to restrictive covenants when the seller becomes an
employee of the purchaser in the context of an asset sale.
The Supreme Court confirmed that only a non-competition clause
relating to an employment agreement justifies the application of
articles 2089 and following of the Civil Code of Quebec, which provides rules
relating to the validity of non-competition provisions, including
the inapplicability of such clause in the event of termination
The Supreme Court thereby confirmed the validity of a
non-compete clause contained in an asset purchase agreement in
which the duration of the clause extended for a period of five (5)
years post-termination of employment, as well as a non-solicitation
clause without any territorial limit.
In this case, the asset purchase agreement was entered into
between Mr. Payette, Mr. Lafortune and Mammoet Crane Inc.
(sellers), and Guay Inc. (purchaser). Non-competition and
non-solicitation commitments had been undertaken in the Asset
Purchase Agreement by Mr. Payette to the benefit of the
During the transaction, it was also agreed that Mr. Payette
and Mr. Lafortune would work for the successor following the
transaction. However, Mr. Payette was dismissed.
The Supreme Court Decision
According to the highest court in the country, in order to
determine whether a restrictive covenant relates to an Asset
Purchase Agreement or to an employment agreement, the reason for
which the clause was entered into must be examined. The
"bargain" that had been reached between the parties must
be appreciated, taking into account the wording of the obligations
and the circumstances in which they were agreed upon.
In the present case, the Supreme Court confirmed that
restrictive covenants cannot be separated from the Asset Purchase
Agreements and therefore, the rules provided in articles 2089 and
following of the Civil Code of Quebec are not applicable.
The Supreme Court restated however that a non-compete clause,
even in a commercial context, must be limited and reasonable as to
its duration, territory, activities covered and to that which is
necessary in order to protect the legitimate interests of the party
to whom it benefits.
In a commercial context, the Supreme Court rejected the theory
that a non-solicitation clause that prohibits "doing business
with clients" amounts to a hybrid non-competition
clause. The Supreme Court also confirmed that such types of
restrictions remain non-solicitation covenants and that in the
context of an asset sale, the failure to include a territorial
limit in a non-solicitation clause does not render the clause
It will be interesting to see if the courts will adopt the same
approach when the non-solicitation clause is contained in an
Finally, the Supreme Court confirmed the comments of the Court
of Appeal as to the use of the date of termination of employment to
determine the duration of restrictive covenants in an Asset
Purchase Agreements. Thus, the undertakings remain valid despite
the reference to the termination of employment date of Mr. Payette
to determine the duration of the obligations of non-compete and
non-solicitation This reference does not alter the conclusion that
the commitments were undertaken due to the asset sale.
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
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