A recent decision of the B.C. Court of Appeal has endorsed a
novel approach to post-employment competition by upholding an
employment contract whereby the employee was required to compensate
the employer if she competed soon after her employment ended. In
Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97, a newly
licensed veterinarian signed a three-year employment contract with
an established veterinarian clinic in a rural community. Under the
contract, the veterinarian was required to pay her employer a set
amount if she set up a practice in the same area within three years
of the employment contract being terminated. The veterinarian left
the clinic after fourteen months and soon established a mobile
veterinary practice in the area. The veterinarian went to court to
have the payment clause declared unenforceable.
The Court recognized that there were two approaches in
establishing whether such a clause was a restraint of trade, either
a "functional" approach, which asks whether the clause
attempts to, or effectively does, restrain trade, or a
"formalist" approach, in which the clause must be
structured as a prohibition against competition, which does not
include "mere disincentives". The formalist approach is
more commonly used in Ontario, but the B.C. Court of Appeal adopted
the functional approach in its analysis, and concluded that the
clause was, in fact, a restraint of trade.
Notwithstanding that the clause was found to be a restraint of
trade, the Court held that the clause was not a penalty because it
reasonably compensated the employer for the costs incurred in
training the new veterinarian. The Court split on whether the
clause was ambiguous and therefore unenforceable. A non-competition
clause is ambiguous if it is not clear as to activity, time or
geography. The majority of the Court concluded that there was only
one reasonable interpretation to the clause and it was not
ambiguous. The clause was therefore enforceable by the employer,
and the veterinarian was required to pay the amounts under the
contract to her former employer as a result of her competition.
This case demonstrates the continually evolving nature of
post-employment covenants, and the fact that courts will give
employers some latitude to develop contractual "tools" to
provide protection (or at least give financial compensation) in the
event a former employee engages in competition soon after
employment. The fact that the Court of Appeal was not unanimous
demonstrates, however, that this is a complex area requiring
careful drafting of contractual terms.
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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.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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