$465,000 Award Overturned by Court of Appeal in Non-Competition and Fiduciary Duty Case

Court of Appeal - Scales of Justice

The Ontario Court of Appeal decided in Veolia ES Industrial Services Inc. v. Brulé that the Employee, who was the former founder and President of the Employer, did not breach the non-competition clause contained in his employment agreement or the fiduciary duty he owed to the Employer, thereby overturning the Ontario Superior Court’s award of $465,000.00.


The Employee, Mr. Brulé, was the founder of the Employer, Veolia ES Industrial Services Inc., until 1999 when he sold the Company to its shareholders. Thereafter, the Employee entered into an employment agreement dated January 1, 2004 with the Employer as the Employer’s President. The employment agreement contained a non-competition clause which prevented the Employee from competing with the Employer’s business for two years following his termination for cause or for two years commencing January 2007 after his termination without cause or his resignation.

On July 7, 2004, the Employee resigned from his employment with the Employer providing 180 days notice, and when he left, the Employee took a binder containing 30-50 recent municipal tenders and information about bids made by the Employer. Thereafter, the Employee incorporated a company which was involved in business different from the Employer.

Despite the differences in business, in 2005, both the Employer and the Employee’s company submitted bids for a public tender for sewer work. The Employee’s company was successful in being awarded the tender. The Employer then sued the Employee claiming that the Employee had breached the non-competition clause, as well as his fiduciary duty.

The Ontario Superior Court of Justice’s Decision

Finding that the Employee had breached the non-competition clause, the Ontario Superior Court of Justice found that the parties to the employment agreement “were trying to get a two year non-competition agreement” and “unfortunately, the draftsmanship of the lawyer drafting the agreement did not provide what, in fact, the parties intended”. Therefore, the Superior Court severed from the non-competition clause the words “commencing on January 1, 2007”, resulting, in the Superior Court’s opinion, in exactly what the parties had intended. Such changes to the non-competition clause resulted in the Employee owing a duty not to compete with the Employer beginning on January 3, 2005, which, in the opinion of the Superior Court, the Employee breached.

Additionally, the Superior Court found that the Employee owed a fiduciary duty to the Employer which ran the same length of time as the non-competition clause, and that the Employee breached that fiduciary duty, by taking the binder of information from the Employer, and by not informing the Employer that his company was submitting a bid for the above mentioned tender.

Given the above, the Superior Court set the amount of damages against the Employee for the above breaches as $465,000.00.

The Employer appealed the decision seeking damages in the amount of $930,000.00, while the Employee cross-appealed the decision claiming that he did not breach either the non-competition clause or his fiduciary duty.

Ontario Court of Appeal’s Decision

The Court of Appeal dismissed the Employer’s appeal and allowed the Employee’s cross-appeal, thereby overturning the Superior Court’s decision.

In reaching this decision, the Court of Appeal stated that the words “commencing on January 1, 2007” could not be removed from the non-competition clause by the Superior Court, and without removing these words, the clause was unreasonable. Further, the Court indicated that even if the clause was enforceable, it would only have restricted the Employee from competing with the Employee for two years commencing on January 1, 2007. Since the Employee competed with the Employer in 2005, the non-competition clause would not have captured the Employee’s actions in question.

Additionally, the Court of Appeal indicated that the Employee did not breach his fiduciary duty as he did not compete unfairly with the Employer, he did not make use of the information in the binder he took from the Employer for the bid, the information contained in the binder was not confidential, and he was not required to inform the Employer that his company was submitting a bid for the tender.

Points of Interest

The decision summarized above establishes the importance of drafting clauses, such as a non-competition clause, in a clear and reasonable manner, otherwise these clauses may be found by a Court to be unenforceable when one attempts to rely on them.

Although the Courts may contemplate the intention of the parties, the above decision demonstrates that the Courts are not permitted to simply amend poor drafting by removing portions of the clause. Rather, the Courts are required to read the clause as it is drafted, which may result in the clause being interpreted as vague or unreasonable, and ultimately unenforceable, leaving the parties unrestricted despite the original intent.

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