Canada: Competition Over Cows Comes At A Cost: Court Of Appeal Upholds Unique Restrictive Covenant

In the recent decision of Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97, the British Columbia Court of Appeal upheld a unique non-competition clause in an employment contract. Many employers do not take advantage of restrictive covenants and they can be challenging to enforce. This case is a good example of careful consideration of the circumstances of the position and the use of a creative strategy to help protect the employer's business interests.

Dr. Rhebergen was a veterinarian employed by the defendant company. She entered a three year agreement with Creston Veterinary Clinic ("CVC") to gain experience and training in dairy medicine. Her contract stated, in part, as follows:

Our Courts routinely hold that a restrictive covenant in the employment context will be void unless the party seeking to uphold the clause can prove it:

1. Protects a legitimate "proprietary interest";
2. Is "reasonable" in terms of duration, geographic location, nature of activities prohibited, and overall fairness to both parties (i.e. court attempts to strike a balance of proportionality between the interests of the employee and employer);
3. Has clear, certain, and not vague terms; and
4. Is not otherwise contrary to public interest.

When it comes to non-competition clauses (usually where a departing employee is restrained from competing within a certain area and/or time) and non-solicitation clauses (usually restraining a former employee from soliciting former clients, business associates, and employees), Courts will not enforce a non-competition clause when a non-solicitation clause will do.

In this case, the employer brought evidence that the non-competition clause was implemented due to previous experience with an associate and their calculations of the investment the employer expected to make in Dr. Rhebergen for mentoring, training and equipment. Further, with respect to the proprietary interest, given the relationships she was developing, the employer estimated the impact on the clinic's goodwill and client volume if Dr. Rhebergen did compete for business. The Court noted the covenant did not prohibit Dr. Rhebergen from establishing her own veterinary practice (as is typically seen in non-compete clauses), she simply had to pay CVC a substantial amount of money if she chose to do so within a 25 mile (40 kilometre) radius and within 3 years of leaving CVC.

Ultimately, Dr. Rhebergen left the CVC and wanted to work for herself. Thus, the dispute focused on whether there was ambiguity with the phrase "sets up a veterinary practice". Dr. Rhebergen wanted to start a mobile veterinary clinic which she argued was not really "set up" in any place. Nevertheless, she intended to target the same eight dairy farms from which CVC received most of its business. The Court considered the realities of practising in an area such as Creston, where there were really only two options: working at CVC, the only veterinary clinic within a 100-mile radius or working for oneself.

In a rare win for an employer, the Court found the non-competition clause enforceable. As with all elements of the employment contract, careful drafting is essential. Courts will not enforce a time or area restriction on competition in many cases. The particular conditions of this case demonstrate there is still room for restrictive covenants in appropriate circumstances.

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