Bad Facts Make Bad Law – Injunctions Restraining Competition in British Columbia
September 16, 2024
We know that non-competition agreements are generally not enforceable in the employment context in Ontario if they were entered into after October 25, 2021, except in a handful of situations. However, that still leaves: the rest of Canada; agreements prior to the magic date; those handful of exceptions; and of course, independent contractors. In short, non-compete injunctions are not dead.
In a decision released August 2, 2024, the B.C. Court of Appeal had occasion to review a motion judge’s decision to grant an interlocutory injunction restraining a tutor from offering services at two universities where he provided services in his capacity as a contractor for a period of over 13 years. The Court of Appeal upheld the granting of the injunction.
Now that is a surprising outcome based on a limited snippet of the facts. The case appears to have turned on the fact that the tutor had taken the materials of the company he had formerly worked for and was now using them as his own. As a result of his actions, the company had lost in only one month all its business at one of the two universities. The company adduced evidence that it would be on the verge of bankruptcy if the injunction was not granted and hence would suffer irreparable harm.
Typically, in injunctions, the irreparable harm test is difficult to meet. In a situation where damages are quantifiable, there is thought to be no irreparable harm and the injunction will not be granted. The large impact the actions had on company revenue was certainly a “swing” factor for the court.
However, the decision is peppered with commentary on the use of the confidential and proprietary materials also. Clearly, the tutor acted improperly, and this would have had the effect of causing the court to lose sympathy with him. These types of actions by litigants often have an invisible impact on the result, but here, it is a bit more visible to the point where the court makes statements which are actually incorrect.
On the question of whether the motion judge erred in determining that the company had a proprietary interest worthy of protection with respect to students’ relationships with their tutors and why it cannot be protected by less restrictive measures, the Court of Appeal states: “In my view, in finding that [the company] had a proprietary interest worthy of protection in [the company] “materials” and that its interest could not be adequately protected by means other than the non-competition clause, the judge was including [the company’s] trade connections with its student clients in his analysis of the proprietary interest capable of protection. Bearing in mind the principle discussed in Elsley and the express language of the non-competition clause, I see no error in principle or fact in his conclusion on either point.”
It does not stand to reason that a non-compete would be necessary. The company would be protected from the use of confidential and proprietary information by appropriate contractual protections and arguably common law principles. A non-solicitation of students would have been sufficient to protect the company’s proprietary interest in that business. It appears here that the agreement between the parties contained protections for some but not all of the confidential and proprietary information at issue, but contained no non-solicitation protections.
This case is a prime example of how courts reach the outcome they desire based on what they think is fair. The misuse of materials by the tutor and the clear solicitation of all students over to his new business, which threatened to put the company into bankruptcy, forced the court to enforce a non-compete obligation which ordinarily would not in my opinion have been granted. The additional fact not overtly commented on by the appeal court was that the tutor had commenced soliciting students while still offering services on behalf the company.
Lawyers can argue law, but clients deliver us facts. The best lawyers will understand the hands they are dealt by the facts and assess risks and advise their clients accordingly. Sometimes even the best lawyers cannot save a client who presents them with bad facts.
Karras v. Wizedemy Inc., 2024 BCCA 301 (CanLII), <https://canlii.ca/t/k6cfb>
Expertise
Employment Law
