Stress-Crete Limited v. Harriman: Ontario court weighs in on restrictive covenants

Written by on November 19, 2020 in Employment Law Blog, Focus on Canadian Cases
restrictive covenants, non-competition, non-solicitation

Most employment agreements contain restrictive covenants, such as a non-competition or non-solicitation clauses. However, it is very unusual for an employer to seek to enforce these provisions by way of an injunction, likely in part due to the high threshold an employer must meet in order to obtain one.

In last year’s Stress-Crete Limited v. Harriman, an employer did just that, providing the Ontario Superior Court with a rare opportunity to clarify the law in this area. The applicants, Stress-Crete Limited and King Luminaire Company, Inc. (the “employer” or “Stress-Crete”), sought an order to prevent the respondent, former employee Stephen Harriman, from engaging in employment with Cyclone Lighting, its direct competitor. Stress-Crete moved for a permanent injunction restraining Harriman from committing alleged breaches of non-competition, non-solicitation and confidentiality in violation of an Employee Confidentiality and Non-Competition Agreement.

The Facts

Stress-Crete, a family-run business headquartered in Burlington, Ontario, manufactures and supplies commercial, municipal, utility and industrial lighting solutions, including concrete poles and arms. Stephen Harriman worked for Stress-Crete for several years, ultimately as Sales Manager of U.S. Northeast and Canada. Harriman’s employment agreement included restrictive covenants with the following terms:

Non-competition: I shall not, for a period of two (2) years after the termination of my employment for any reason whatsoever, be employed by a director, officer, shareholder, principal, agent or partner of, operate, act as consultant to, invest in, loan money to, or directly or indirectly engage or be involved in, any person, corporation, association, firm, partnership, or business which has all or part of its undertaking the manufacture, sale or lease of:

    1. poles used to carry utility services; or
    2. lighting fixtures; or
    3. any other products manufactured or sold by Stress-Crete or any of the Stress-Crete association corporations, (King Luminaire Co. Inc.), at the time of my termination of my employment, or
    4. any or products similar to, or competitive with the products described in (a) (b) or (c) within a 750-mile radius of any Stress-Crete Ltd, Stress-Crete Inc. or King Luminaire Co. Inc. production facilities.

Non-solicitation: I shall not, for a period of two (2) years after the termination of my employment for any reason whatsoever:

    1. Solicit or entice, or attempt to solicit or entice, either directly or indirectly, any of the employees of Stress-Crete to enter into employment or service with any business described in Clause 2 above; or
    2. Contact any person, firm, corporation, or governmental agency who was a customer of Stress-Crete at any time during my employment with StressCrete.

Harriman resigned from Stress-Crete in October 2018. When he advised the company that he was contemplating offers of employment from some of its competitors, Stress-Crete offered to continue to employ Harriman until he could find a position with a non-competitor. Harriman refused, and accepted a sales role with Cyclone. Stress-Crete advised Harriman that they considered his actions harmful to their market share in Ontario.

The Law

In order to obtain an injunction against a former employee, an employer must be able to demonstrate that (i) there is a serious issue to be tried, and (ii) that the employer will suffer irreparable harm if the injunction is not granted, meaning harm that cannot be quantified in monetary terms or cannot be cured by the payment of damages.

The Decision on Restrictive Covenants

The court held that the non-competition clause was unenforceable on the basis that the scope of the geographical boundary was vague and imprecise, and therefore unreasonable. Specifically, the court found the words “within a 750-mile radius of any Stress-Crete Ltd., Stress-Crete Inc., or King Luminaire Co., production facilities” to be ambiguous, questioning whether it would apply to every employer facility within North America.

The court found that the non-solicitation clause was enforceable as its language was sufficiently reasonable and unambiguous and did not constrain the respondent’s ability to work in a sales field or other related occupation. The court also concluded, based on Harriman’s testimony, that he attempted to solicit Stress-Crete’s clients. These factors presented a serious issue to be tried.

The court went on to hold that Stress-Crete successfully demonstrated that it would suffer irreparable harm if the injunction were not granted. It noted that Harriman had intimate knowledge of Stress-Crete’s market strategy, pricing levels, price lists, sales reports and customer lists, and could use that knowledge to undermine the company’s ability to obtain contracts in Ontario. The court accordingly ordered Harriman to comply with the terms of the non-solicitation and confidentiality clauses in his employment agreement.

The Takeaway

This decision confirms that restrictive covenants must be clearly and precisely drafted, and should constrain former employees as little as is necessary to protect the company’s legitimate interests. Employers can also learn from Stress-Crete’s offer to continue to employ Harriman until he could find work with a non-competitor, which went a long way in establishing its credibility and reasonableness before the court.

Minken Employment Lawyers is your source for expert advice and advocacy on today’s employment law issues and on restrictive covenants. If you have any questions please contact us or call us at 905 477-7011. Sign up for our newsletter to receive up-to-date Employment Law information, including new legislation and Court decisions impacting your workplace.

Please note that this article is for informational purposes only and does not constitute legal advice.

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