Canada: Agreement For Sale Of Assets Or Contract Of Employment

Last Updated: December 9 2013
Article by Isabelle Tremblay and Justine Laurier

Most Read Contributor in Canada, November 2017

On September 12, 2013, the Supreme Court of Canada rendered its unanimous decision in Payette v. Guay inc.1. The judgment dismissed the appeal from the decision of the Quebec Court of Appeal2 and completed the holdings of the 2009 decision in Shafron v. KRG Insurance Brokers (Western) Inc.3 by specifying the method to be used in determining the legal framework applicable to restrictive covenants relating to employment, whether they are linked to an agreement for sale of assets or a contract of employment.

The Facts and the Judicial History

Respondent Guay inc. (the "Buyer") is a crane rental company operating some twenty establishments across Quebec. In October 2004, the company purchased the assets of several businesses engaged in the same field ("Groupe Fortier"), controlled by the Appellant, Yannick Payette ("Payette") and his partner.

In their agreement for sale of assets, the parties agreed that Payette and his partner would continue working as full time consultants for Guay inc. for a six-month period and that they would be subject to non-competition and non-solicitation clauses. Under those provisions, Payette undertook not to compete with the Buyer anywhere in Québec for a period of five years following the termination of his employment. He also assumed the obligation of not soliciting the employers of the Buyer or of Groupe Fortier for the same period, but without specifying the territory covered.

At the end of this transitional period, in May 2005, the parties concluded a contract of employment providing that Payette's employment as operating manager for Groupe Fortier was to continue until August 31, 2008, at which date the contract would be renewed for an indeterminate term.

In August 2009, Payette was dismissed without serious reason and, on March 15, 2010, he began a new job as operations manager of Mammoet Crane Inc. ("Mammoet" ), a competitor of Guay inc. After having lost seven of its employees to Mammoet , the Buyer filed a motion in the Quebec Superior Court for a provisional interlocutory injunction, ordering Payette to comply with the restrictive covenants contained in the agreement for sale of assets by ceasing to work for Mammoe. The order was granted and renewed until the hearing of the motion for a permanent injunction on its merits.

The Superior Court held that a contract of employment had been concluded at the closing date of the October 2004 transaction. Thus, Article 2095 of the Civil Code of Québec ("C.C.Q."), providing that an employer cannot benefit from a non-competition clause where he dismissed his employee without sufficient cause, precluded Guay inc. from availing itself of the non­competition covenant to which the parties had agreed. The trial judge also ruled on the validity of the non­-competition clause under Article 2089 C.C.Q., requiring that a non-competition stipulation be limited "as to time, place and type of employment, to whatever is necessary for the protection of the legitimate interests of the employer."4 Therefore, it was held that the non-competition clause, which would be in effect for a duration of five years and cover the whole Province of Quebec, was unreasonable with regards to its territorial scope, as it applied outside the territory in which Groupe Fortier actually operated. The trial judge also concluded that the non-solicitation clause was a "hybrid" non-competition and non-solicitation clause, and was therefore unlawful because of the absence of a geographic limitation. This determination that it was a "hybrid" clause came from the use of the words "do business or attempt to do business" in the clause.

The first instance judgment was reversed by a majority of the Quebec Court of Appeal and a permanent injunction was issued, enjoining Payette and Mammoet to comply with the non-solicitation and non-competition covenants. In support of that decision, Mr. Justice Chamberland, writing for the majority, held that the obligations created by those clauses, which were intended to protect the $26 million invested by the Buyer in purchasing the assets of Groupe Fortier, were related to the agreement for the sale of those assets and not to the contract of employment. Consequently, in the light of the rules applicable to the agreement for the sale of assets, the Court concluded that the restrictive covenants were valid, and that the vast territory covered by the non­competition clause was justified by reason of the mobility of the equipment used in the crane rental industry. As for the non-solicitation covenant, the Court of Appeal rejected the "hybrid" clause characterization given it by the trial judge, attributing to it instead the scope that the parties intended it to have. The Court of Appeal therefore concluded that the restrictive covenants applied until August 3, 2014, i.e. for a term of five years following Payette's dismissal.

It is interesting to review the dissident opinion of Madam Justice Thibault, which is based on the conclusion of a contract of employment at the end of the six-month mandate initially granted following the purchase of the assets of Groupe Fortier. By reason of that new contract governing the employer-employee relationship between the parties, she held that the non-competition and non-solicitation covenants should be construed under the rules relating to contracts of employment. Thibault J.A. stressed that each party was protected by the contractual undertakings assumed: on the one hand, the Buyer was protected for five years following its purchase of the assets; and on the other, Payette, pursuant to his contract of employment, was protected in the event of dismissal without just and sufficient cause. Consequently, Thibault J.A. concluded that by reason of the abusive nature of the dismissal, the restrictive covenants were not applicable under Article 2095 C.C.Q. It is noteworthy, however, that the contract of employment signed in May 2005 contained no restrictive clauses.

The Decision of the Supreme Court of Canada

The appeal of the Court of Appeal's decision was dismissed by a unanimous bench, in a judgment written by Mr. Justice Wagner. The Supreme Court first dealt with the issue of the applicability of the protection provided by Article 2095 C.C.Q. to the facts at issue. The Court then analyzed the reasonableness of the non-competition and non-solicitation undertakings provided for in the agreement for the sale of assets.

Regarding the first issue, Wagner J. outlined the process to be followed in determining the legal framework applicable to non-competition or non-solicitation clauses:

"Article 2095 C.C.Q. is applicable to a non-competition clause only if the clause is linked to a contract of employment. This means that, before enquiring into whether a non-competition clause or a non-solicitation clause is valid, the court must identify the type of juridical act to which the clause in question is linked."4

Justice Wagner reviewed the principal distinction in the analytical process followed by the majority in the Court of Appeal and that followed by Thibault J.A. On the one hand, the majority took a contextual approach, analyzing the circumstances in which the agreement was concluded, including the intention of the parties. On the other hand, Thibault J.A. adopted a literal approach, discounting the intention of the parties and the circumstances surrounding the signing of the agreement. The Supreme Court indicated that the first approach was the proper one. For that reason, the Court held that the restrictive covenants were linked to the contract for the sale of the assets and not to the contract of employment. Accordingly, Justice Wagner added that in order to determine to what type of contract such clause is linked, "the 'bargain' negotiated by the parties must be considered in light of the wording of the obligations and the circumstances in which they were agreed upon. The goal of the analysis is to identify the nature of the principal obligations under the master agreement and to determine why and for what purpose the accessory obligations of non-competition and non-solicitation were assumed."5

In this case, such analysis revealed three factors that allowed the Court to conclude that Payette had assumed the non-competition and non-solicitation obligations in the context of the sale of the assets of his business, and not as part of the contract of employment which followed the transaction. Had there been no sale of assets, Payette would never have agreed to the restrictive covenants.
In the first place, the wording of the covenants expressly provided for the obligations to be assumed "[i]n consideration of the sale that is the subject of this offer"6 and "having regard to the consideration provided for herein"7. It was not Payette's potential employment status which caused him to acknowledge the reasonableness of these clauses and to agree to be bound by them, but rather the benefits conferred on him by the sale of assets.

The second factor taken into account was the context of the sale of the assets. Wagner J. held: "The main point of the sale transaction for the respondent was to acquire the vendors' goodwill, skilled employees and customers. If the respondent had not obtained the protection in question, the transaction would never have taken place. There is therefore a direct causal connection between the restrictive covenants and the sale of the assets."8  Wagner J. regarded this linkage as even clearer given the absence of any restrictive covenants in the contract of employment of May 2005. That showed that those covenants "were negotiated essentially in connection with the sale of Groupe Fortier's assets and must therefore be interpreted on the basis of commercial law."9

The third element related to the mention of termination of employment in the restrictive clauses. The Supreme Court held that that reference did not change the commercial nature of the restrictive covenants, but was limited to determining the start of the period when the non-competition and non-solicitation covenants were to be in effect.

Finally, after concluding that the rules governing the restrictive covenants were those applicable to commercial contracts, the Court addressed the issue of the reasonableness of the covenants, holding that: "Whether a non-competition clause is valid in such a context depends on the circumstances in which the contract containing it was entered into. The factors that can be taken into consideration include the sale price, the nature of the business's activities, the parties' experience and expertise and the fact that the parties had access to the services of legal counsel and other professionals. Each case must be considered in light of its specific circumstances."10 The Court emphasized that a restrictive covenant will be valid, unless its scope is shown to be unreasonable on a balance of probabilities. In the case at bar, the study of the context of the transaction led the Court to acknowledge the reasonableness of the temporal and territorial restrictions, particularly having regard to: the substantial value of the transaction, the experience of the parties involved, the professionals hired to advise them and the balance of their bargaining power.

With respect to the non-solicitation covenant in particular, the Supreme Court dismissed the arguments of the appellants to the effect that in order for the clause to be valid, it had to have a territorial limitation. Among other reasons, Wagner J. found that for the clause to be valid, it was sufficient that it be limited to target customers.

The Impact of the Decision

On a practical level, this new Supreme Court decision clarifies the analytical process to be followed in determining the scope of the protection afforded by non-competition and non-solicitation obligations assumed as terms of a commercial contract to which a contract of employment is accessory. We believe that this clarification is fitting coming as it does at a time when a jurisprudential trend has developed, acknowledging that restrictive covenants contained in shareholders agreements, or in contracts for the sale of businesses, may be governed by provisions relating to employment contracts (including articles 2089 and 2095 C.C.Q.). It is now to be expected that courts will read attentively the reasons of the Supreme Court in Payette v. Guay inc. before taking a position on that subject.


1. 2013 SCC 45.

2. Guay inc. c. Payette, 2011 QCCA 2282.

3. 2009 SCC 6

4. Payette v. Guay inc., 2013 SCC 45, para. 42.

5. Ibid., para. 45.

6. Ibid., para. 47.

7. Ibid., para. 47.

8. Ibid., para. 49.

9. Ibid., para. 51.

10. Ibid., para. 61.

About BLG

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions