On January 23, 2009, the Supreme Court of Canada handed down a decision regarding the Court's role in interpreting and enforcing restrictive covenants. More specifically, the Supreme Court held that it is not for a Court to interpret or "fix" ambiguous restrictive covenants in an effort to uphold their validity.
Facts and Judicial History
In the case of Shafron v. KRG Insurance Brokers (Western) Inc.1, Mr. Shafron's employment contract with KRG Insurance Brokers (Western) ("KRG") contained a restrictive covenant that prohibited him from competing with KRG for a three-year period after the termination of his employment in the "Metropolitan City of Vancouver". In 2001, Mr. Shafron left the employ of KRG and began working as an insurance salesman for Shaw Insurance Agency in Richmond, British Columbia. KRG sought to have the restrictive covenant contained in Mr. Shafron's employment contract enforced. Mr. Shafron challenged the enforceability of the restrictive covenant on the basis that there was no recognized meaning for the phrase "Metropolitan City of Vancouver."
The trial court dismissed KRG's claim. However the Court of Appeal overturned the lower court's decision and, by relying on the doctrine of notional severance (the process of reading down a contractual provision so as to make it legal and enforceable), clarified the meaning of "Metropolitan City of Vancouver" as to denote "the University of British Columbia endowment lands, Richmond and Burnaby." By doing so, the Court of Appeal upheld the restrictive covenant and ruled that Mr. Shafron was in breach of same.
The Supreme Court
The Supreme Court of Canada reversed the ruling of the Court of Appeal. It found that the expression "Metropolitan City of Vancouver" was neither clear nor certain, and as such the restrictive covenant could not be validly upheld and enforced. The Court further articulated that it is not for the Court to step in and impose a meaning on an ambiguous clause that the parties themselves did not intend. Ruling otherwise would "invite the employer to impose an unreasonable restrictive covenant on the employee" given that the employer could rely on the Court to read down the language and enforce such a restrictive covenant.2
In Quebec, non-compete covenants are expressly governed by Article 2089 of the Civil Code of Quebec, which provides that a non-competition clause must be limited to time, place and type of employment and whatever is necessary for the protection of the legitimate interests of the employer, failing which it will not be enforceable. The Supreme Court decision further buttresses this legal rule.
This decision indubitably illustrates that courts will not step in to "save" or enforce language in an employment contract that is vague or uncertain. Employers cannot circumvent the absolute necessity of drafting clear, reasonable and unambiguous restrictive covenants, otherwise, they risk losing the faculty to protect their interests when faced with departing employees.
Footnotes
1 2009 SCC 6.
2 Paragraph 40 of the judgment.
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