Non-Competition Agreements—Are Global Restrictions Enforceable?

Is it reasonable for an employer with customers all over the world to enforce a globally-applicable non-competition agreement with former employees? How broad is too broad? Such questions were raised when Tom Mason, a sales representative, filed an application with the Ontario Superior Court of Justice in July 2009 to have such a covenant declared unenforceable.

Was the Covenant Ambiguous?

Chem-Trend is an American chemical manufacturer with a global presence. When Mason accepted employment as a technical sales representative with the company in 1992, he signed a restrictive covenant which included for non-competition and non-solicitation clauses. He thereby agreed to refrain from engaging in competitive activity with Chem-Trend, and from soliciting business from customers who had dealt with Chem-Trend throughout his tenure with the company, as well as for one year following the end of his employment.

After 17 years of employment with Chem-Trend, Tom Mason was terminated. In need of work, and despite the restrictive covenant that he had originally signed, he began dealing competitive products to known Chem-Trend customers. However, the restrictive covenant posed a problem, as Chem-Trend has customers all around the world, and its chemical specialties are used in almost every manufacturing industry. Therefore, Mason sought to have the restrictive covenant declared broad, unreasonable, and unenforceable.

After reviewing the facts, Justice E.R. Kruzick found that although the covenant was broad in geography, in the extent of restricted activity and in its customer scope, the covenant was not ambiguous. The terms were actually very clear as to what, where and when the restrictions would be in place.

In fact, it was in view of the geographic reach and proprietary nature of Chem-Trend’s business, and the extent and nature of Mason’s employment that Justice Kruzick found the covenant to be reasonable. Mason himself had worked vast extents of territories for Chem-Trend, including all of Canada and parts of the United States.

Justice Kruzick concluded that the confining nature of the agreement was offset by the comparatively short duration of the restrictions, and Mason’s application was thus dismissed.

Points to Note

It is noteworthy that at the time of signing, Mason had discussed and negotiated changes to certain other terms of the employment documentation. Such actions indicated that Mason had understood and agreed to the restrictions, even if at the time of signing he did not foresee their future applicability.

The element of timing was also a consideration, as Justice Kruzick pointed out that before engaging in the competitive activity, Mason failed to first seek the Court’s ruling on the covenant’s enforceability, conduct which the Court would not condone.

As with all cases of restrictive covenants, the onus lies upon the party seeking enforcement to justify the validity of the terms. The case of Mason v. Chem-Trend illustrates that even restrictions spanning the entire globe are not necessarily too broad, and that the nature of a company’s business may support and require such restrictions. Each case must be judged on its own merits.

See Mason v Chem-Trend, 2010 ONSC 4119

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