BC Court of Appeal Decision on Enforceability of Non-competition Clauses

In IRIS The Visual Group Western Canada Inc. v. Park, 2017 BCCA 301, an eyewear company appealed the BC Supreme Court’s decision not to enforce a non-competition clause against an optometrist who was allegedly violating the clause. The company’s appeal was unsuccessful. The BC Court of Appeal agreed with the trial judge and found that the non-competition clause was ambiguous, was overbroad in the activities it purported to prohibit, and could not meet the test of being reasonable as between the parties. The clause was held to be unenforceable and the optometrist was allowed to continue with her work.

Background

The appellant in this case, IRIS, is a corporation that sells eye care services and eyewear products. The company contracts optometrists to work at various IRIS locations under an optometric service agreement.

The respondent, Dr. Park, was an optometrist who worked at IRIS’ Vernon, BC location between 2007 and 2016. When she began at IRIS, she signed an optometric service agreement that contained a non-competition clause. In 2010, she was asked to sign a new agreement with a more detailed non-competition clause and additional non-disclosure and non-solicitation clauses. These provisions were intended to protect IRIS if an optometrist left the company to set up a competing business.

The non-disclosure clause prohibited Dr. Park from disclosing IRIS’ business information or customer list to anyone. The non-solicitation clause prohibited Dr. Park from soliciting any customers, employees, optometrists, or partners away from IRIS. The non-competition clause stated that upon termination of the agreement, Dr. Park would not compete with IRIS for three years within five kilometres of an IRIS location. Specifically, the non-competition prohibited Dr. Park from competing,

…either directly or in partnership or in conjunction with any person or persons, firm, association, syndicate, company or corporation, directly or indirectly carry on or be engaged in any part thereof or be employed by any such person or persons, company or corporation carrying on, engaged in, interested in or concerned with a business that competes with OpCo [an affiliate of IRIS] or IRIS within 5 km of the Location. For greater clarity, a “business that competes with OpCo or IRIS” is defined as any entity that dispenses performs [sic] any sort or [sic] prescription or non-prescription optical appliances including eye glasses or sunglasses, vision correcting lenses and contact lenses, or is an optical retail dispensary, optometry clinic, an ophthalmology clinic, or any laser eye surgery centre and/or any location that performs optical refractions and/or complete or partial eye examinations or eye health assessments.

In 2016, Dr. Park quit IRIS to set up her own practice in Vernon. Dr. Park’s new practice was established approximately three and a half kilometres from the IRIS location where she formerly worked.

IRIS brought an action against Dr. Park, seeking an order to prevent her from soliciting its customers through advertising and competing with an IRIS location in such close proximity.

Trial Decision

The trial judge, Justice Johnston, found that Dr. Park’s advertising did not violate the non-solicitation clause in the agreement; this decision was not appealed.

The trial judge also found that the non-competition clause was unenforceable. Justice Johnston held that although the temporal and spatial limitations in the clause were reasonable, the broad description of prohibited activities was unreasonable. IRIS had a reasonable economic interest in its patients who required regular eye examinations and new prescription vision products but IRIS did not have a similar reasonable interest in protecting its ability to sell non-prescription reading glasses or sunglasses to its patient base. This part of the decision was appealed.

Appeal Decision

On appeal, Justice R.B. Hunter approved of Justice Johnston’s rigorous scrutiny of the non-competition clause and noted that the heightened scrutiny applied whether Dr. Park was an employee or an independent contractor.

The Court found that the clause failed the reasonableness test as it was both ambiguous and went well beyond what was necessary to protect IRIS’ business interests. It was unclear what nature of the connection was required in order to compete “in conjunction with” another person and how one was to determine whether an individual was “concerned with” a business that competes with IRIS. Furthermore, if the clause were enforceable, Dr. Park would be restricted from engaging in a wide range of work, including any work involving eyewear sales that had nothing to do with the practice of optometry.

The Court of Appeal also agreed with the trial judge that this was not one of those rare cases where the court should assist one of the parties by rewriting an overbroad clause so that it can meet the test of reasonableness. Therefore, in a unanimous decision, the Court of Appeal dismissed the appeal.

Important Principles

Non-competition clauses in contracts will only be found to be enforceable in exceptional cases. A covenant not to compete is a restraint of trade and presumptively unenforceable.

However, a restraint of trade can be enforceable if it is reasonable as between the parties and with reference to the public interest. If an employer’s proprietary business interest can be adequately protected by other measures less restrictive than a non-competition clause, such as a non-solicitation clause, a non-competition clause is likely to be found unreasonable and unnecessary. If a non-competition clause is necessary, the non-competition clause in the agreement must be reasonable by reference to the activity prohibited, the geographical area of the prohibition, and the duration of the prohibition. Courts are reluctant to fix problematic clauses by severing improper or ambiguous language to make the clause reasonable.

Courts rigorously scrutinize non-competition clauses contained in employment agreements to determine if the clauses are reasonable and enforceable. The same scrutiny applies to agreements with independent contractors because in either situation, there is an imbalance of bargaining power between the parties.

Implication for Employees or Independent Contractors

It can be difficult for employers to enforce non-competition clauses against employees or independent contractors if the clauses against employees or independent contractors are not drafted carefully. Overly broad or ambiguous non-competition clauses may be found unenforceable and employees or independent contractors may be able to compete openly with previous employers.

Implication for Employers

The case demonstrates the importance of drafting clear and concise restrictive covenants. The Court found the terms “in conjunction with” and “concerned with a business” to be ambiguous. Clauses must also not be any more restrictive than necessary to protect the employer’s business interests.