Are post-employment restrictive covenants effective to prevent an employee from commencing or continuing employment with a competitor? Not if the covenant is overly broad or
In a decision released earlier this month, the Supreme Court of British Columbia dismissed Telus Communications Inc.’s application to restrain one of its former vice-presidents from joining a competing telecommunications company Telus Communications Inc. v. Goldberg, 2018 BCSC 1825. The vice-president left the position he’d held for more than a decade after he became concerned about his prospects of further advancement. He then joined Rogers Communications Inc. Telus sought to rely on a restrictive covenant that it entered into with the vice-president, which prevented him from working for a competitive business once his employment with Telus came to an end.
Telus led evidence that its former executive failed to provide full and frank disclosure that he was engaged in negotiations with Rogers at the same time he was pursuing a termination package from Telus. The Court ruled that he owed fiduciary duties to Telus because of his senior position which he breached.
Nevertheless, the Court dismissed Telus’ application to prevent him from taking on a new position with Rogers. The chambers judge did not agree that an injunction was reasonably necessary to protect Telus’ interests. The Court was also concerned that the restrictive covenant would unduly restrict the departing executive’s ability to make use of his managerial skills and talents.
There are two reasons why the restrictive covenant failed. First, the provision was overly broad in that it imposed a blanket prohibition against employment with any competitor of Telus, or any of Telus’ subsidiaries. The chambers judge noted that Telus is a large, multibillion-dollar enterprise with numerous subsidiaries and affiliates in multiple fields of endeavor. Furthermore, the restrictive covenant went further than necessary in protecting Telus’ rights because the provision sought to prevent employment with a competitor regardless of whether the new position had any relationship to the duties and knowledge the vice-president gained during his time with Telus.
Second, the Court ruled that the restrictive covenant was too ambiguous to be enforceable because the prohibition against post-employment conduct included the amorphous phrase “… or in any manner whatsoever”. Moreover, the covenant did not delineate the specific lines of business Telus was seeking to protect.
The decision reflects judicial reluctance to give effect to restrictive covenants which act as a restraint of trade and are often the product of the inequality of bargaining power between an employer and employee. The decision confirms that a restrictive covenant must go no further than is necessary to protect the rights that the employer is entitled to preserve while at the same time not unduly restraining an employee from making use of his or her vocational skills and abilities.
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...View Details