The Supreme Court of Canada recently reiterated that restrictive covenants that arise in the context of the sale of a business will be treated differently and more generously than those that arise in the context of a contract of employment.  While the case arose under the Civil law of Quebec, it clearly has implications for the Common law regimes in the rest of Canada.

Facts

Yannick Payette and his partner controlled several companies in the crane rental business and sold the assets of those companies to Guay Inc. for $26 million in October 2004. The purchase agreements contained non-competition and non-solicitation clauses which would apply for a period of five years running from the date on which Payette and his partner ceased to be employed directly or indirectly by the purchaser. The non-competition clause precluded Payette and Lafortune from being employed or otherwise involved in the crane rental industry anywhere in the province of Quebec throughout the five-year period, while the non-solicitation clause precluded them from soliciting or “do[ing] business or attempt[ing] to do business” with any of their former customers or the customers of Guay Inc. during the same period.

The terms of the purchase agreement also included a provision that Payette and his partner would stay on with Guay Inc. as contractors for a period of 6 months after which there was the possibility of a further employment relationship. Payette was in fact employed by Guay Inc. through what became an employment contract of indefinite duration. He was dismissed without cause on August 3, 2009. A few months later, he and his partner were paid $150,000 in compensation in resolution of the termination of their employment. In March 2010, Payette began working for a direct competitor of Guay Inc., Mammoet Crane Inc.

Guay Inc. sought and obtained a interlocutory injunction against Payette requiring compliance with the aforementioned restrictive covenants until the hearing of the case on its merits, which proceeded all the way to the Supreme Court of Canada.

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For more information please contact Chris Beneteau at 604.631.9259 or a member of our Labour and Employment Group.