Even in a tight labour market, people with highly specialized skill sets can find themselves in demand by employers and, therefore, may have the ability to choose where they want to work. For many companies, retaining a highly specialized employee is extremely important. This can be particularly true if that company operates a consulting business where their employees are contracted out to work for third parties.
Due to an employer’s need to retain employees, they may seek to incorporate a non-compete or non-solicitation clause into their employment agreement to prevent an employee from leaving their company to work with a competitor or client. Non-solicitation agreements can be difficult to enforce due to the power imbalance between employers and employees, but as was discussed in a recent decision from the Alberta Court of King’s Bench, there are limited situations in which a court may enforce them.
In the recent decision of Catch Engineering Partnership v Mai, the employer hired the employee pursuant to an employment agreement dated February 21, 2019. The employee was an engineer who had a background in electrical engineering and applied mathematics. The employer operated a consulting business and provided engineering services to its clients who sought assistance from engineers without the burden of hiring them as employees. In this case, the employer was hired by a client, “CNRL,” to provide specific engineering services while the company went through a hiring freeze.
The employment contract between the employee and employer contained a confidentiality agreement and a non-solicitation provision. Specifically, these provisions provided that for a period of 12 months following termination of the employment, the employee shall not, amongst other things, solicit any of the employer’s customers.
Approximately one year into the employment relationship, the employee asked his employer if he could change his work status from “employee” to “contractor” in order to receive a higher hourly wage. The employer advised the employee of what was required to make this change, and the parties negotiated compensation. The employer offered an hourly rate of $60 for contract work, but the employee sought an hourly rate of $65. Eventually, the employee agreed to the lower rate. However, the following day, he sent the employer a resignation letter noting the parties’ inability to agree on compensation and provided his two weeks’ notice.
Just three minutes after sending his resignation letter, the employee contacted CNRL, the client who he provided services to through the employer. He advised CNRL that he had resigned from the employer’s company and asked the client if they could instead retain his services through a different consulting agency. Only three days later, the employer accepted a position with a new agency and was contracted to work for CNRL.
Based on this, the employer took the position that the employee had breached the non-solicitation clause, highlighting the fact that CNRL was one of the employer’s big clients, and alleged that it suffered damages as a result.
The Court began its analysis by stating that restrictive covenants, such as non-solicitation clauses, are prima facie void because they are contrary to public policy. However, there can be exceptions to this when the circumstances of a case warrant so. In this case, the Court found that the employer has a legitimate interest in protecting its business model, particularly considering that the employer spends time building and fostering its relationship with clients. Therefore, if the employees leave the company to work for the clients they provide services to, the employer’s business model would cease to be viable.
The Court found that the non-solicitation clause in the signed employment agreement was narrow in nature as it protected the employer’s “legitimate business interests and does not otherwise interfere with an employee’s ability to utilize their knowledge, skills, and experience in the job market.” The Court also found that the clause was clear and unambiguous, stating it only restricts an employee from contacting a client of theirs for the purpose of transferring their business to the employee directly or to a new employer. It did not limit the employees from finding other work within the industry. Finally, the Court found that there was no power imbalance during negotiations between the employee and employer when the employment relationship began.
Having found that the contract was enforceable, the Court then considered whether the employee breached the employment agreement. The Court wrote that the employee’s email to CNRL was a “clear and unequivocal invitation to (CNRL) to discontinue its engagement with (the employer)” and contract the employee through another agency. The Court also ruled that the employee had breached his confidentiality agreement with the employer.
The Court determined that the employee was dishonest with the employer and contacted CNRL regarding alternative opportunities while he was still employed with the employer. The Court referenced the employee’s answers to questions during the trial and did not believe the employee’s statement that he had not contemplated working with CNRL through another agency.
The Court held that the employee’s actions resulted in a breach of the employment agreement, stating that the employee “breached (his) duty of good faith. He engaged in a course of conduct contrary to his employer’s interests, and he was dishonest in his dealings with his employer. (The employee’s) dishonesty harmed the business interests of his employer Catch.”
Concerning the employer’s claim for damages, the Court estimated that the employer lost approximately $112,320 in profit based on CNRL’s contract and awarded the employer damages in that amount.
The Court’s decision, in this case, may come as welcomed news by employers seeking to incorporate non-solicitation clauses in their employment contracts. However, it is important to note that the Court highlighted several factors which impacted the ultimate decision, showcasing the importance of having a clear and unambiguous employment contract. If a non-solicitation clause is in question, the Court will analyze the circumstances thoroughly before deciding whether it is enforceable.
Contact the Employment Lawyers at DBB Law in Calgary for Advice on Employment Agreements and Employment Termination
Employment agreements are critical documents which govern the terms of the employment relationship between employees and employers. In cases of wrongful termination and contract breaches, these documents can be essential tools in resolving disputes between parties. The trusted team of employment and labour lawyers at DBB Law in Calgary helps employees review and understand their rights and obligations under an employment contract before entering into the employment relationship. We also help employers draft employee and contractor agreements, and provide proactive advice on employment termination and severance packages to minimize the potential for disputes.
Dunphy Best Blocksom LLP is a leading labour and employment law firm located in Calgary. We work closely with our individual and corporate clients to provide them with comprehensive advice on every aspect of the employment relationship. To arrange a consultation with a member of our employment law team, contact us at 403-265-7777 or online.