Written with Christina Catenacci LL.B.
The Queen’s Bench for Saskatchewan just granted an injunction restraining a former employee from competing against his former employer, soliciting the employer’s clients, and using any of the employer’s confidential information he garnered while working with the employer.
Facts of the case
Rob Lozinski was an eight-year sales employee and senior advertising consultant with the sole responsibility of drawing in advertising for the employer, Rawlco Radio Ltd. The employment relationship was evidenced in a written employment contract which included various restrictive covenants such as a non-competition, non-solicitation, and confidentiality clauses. Particular to this case, the non-compete clause stated that the employee would not compete with the employer in the City of Saskatoon or within a 100‑kilometre radius of Saskatoon for a period of six months.
In October 2009, Lozinski resigned his position with the company to pursue a management career with North Ridge Developments, a home building company. However, and as evidenced later in court, he found that his expertise was in the radio industry and not in the housing market. In September 2012, Lozinski found a position as general sales manager for Harvard Broadcasting Inc.
Harvard’s only Saskatoon station is Wired 96.3 FM, which is in direct competition with Rawlco’s radio stations, which include C95 FM and NewsTalk 650 CKOM, as well as Rock 102 FM.
Rawlco, the former employer was of the view that Lozinski, the former employee, was directly competing and was actively soliciting, contacting and working to gain advertising clients at their expense. In fact, Rawlco believed that Lozinski, used his detailed knowledge of their customers, pricing, sales and marketing plan which would cause substantial economic damage to the them if not restrained.
To that end, Rawlco launched an action and requested under Rule 387A of The Queen’s Bench Rules for an interlocutory order restraining the respondent Rob Lozinski from:
- competing with the employer within the City of Saskatoon and within a 100-kilometre radius of the City of Saskatoon
- soliciting or aiding in the solicitation of any of the employer’s clients
- using any confidential information of the employer that the employee garnered during the course of his employment
The court found that the employer could meet the test to award an injunction. The test is based on the Supreme Court of Canada decision of RJR‑MacDonald Inc. v. Canada (Attorney General) , 1994 CanLII 117 (SCC), which requires Rawlco to establish that:
- there is a serious issue to be determined at trial of the action;
- the applicant will suffer irreparable harm if the injunction is not granted; and
- the balance of convenience favours the granting of the injunction
In addition, at common law, restrictive covenants are presumed to be invalid. In order for the courts to find the clause valid and enforceable, the restraint being sought by the employer must be reasonable. In assessing whether the restraint is reasonable, the employer must have a legitimate interest deserving of protection, the restraint must go no further than protecting the employer's legitimate interest and it must be in the public interest to permit this form of protection. Thus, employers must examine carefully the circumstances of each particular situation and seek legal advice on whether non-competition clauses are desirable and, if so, ensure that they are fair, reasonable and able to pass scrutiny by the courts.
In this case, the court believed that granting the injunction was reasonable, given that:
- the employer had significant training and development opportunities for employees for understanding the company way of operating
- the employer developed important personal contacts with clientele over many years
- the employer could lose a substantial portion of the market share in a small and competitive market
- allowing the employee to use the relationships developed with the employer clientele and its marketing strategy would result in major losses and damages to the employer
- the six-month time period in an area consisting of the City of Saskatoon and a 100-kilometre radius thereof were reasonable time and geographical limitations on the employee
- the employee was not restricted from pursuing his advertising career with television, newspapers and internet – just not radio
Principle stemming from this case
Restrictive covenants are often utilized by employers to govern the post-employment activities of key employees. The employer seeks to protect itself from damage imposed by former employees engaging in competitive business activities.
Understandably, employers who have invested considerable time and resources in their employees want to be sure that if these employees leave their employment they cannot take unfair advantage of the knowledge obtained and use this to the detriment of their former employers.
Within certain narrow boundaries, restrictive covenants can be successfully used to protect a business from the competitive threat posed by former employees. An employment contract purporting to limit the post-employment activities of the employee will be enforceable if the former employer can show the restriction is justifiable and reasonable in scope. But contractual limitations amounting to a complete restraint of trade or which do not protect a legitimate proprietary interest of the employer will not be upheld.
Although few restrictive covenants have been enforced by the courts, some restrictive covenants can be found to be reasonable. While it is more common to enforce a non-solicitation clause or confidential information clause, a non-compete clause is a bit trickier. The goal is to make the clause reasonable by ensuring the clause is not overly broad in terms of substance, time frame, and geographical radius.
Employment contracts can be a very useful tool for employers if used properly, and restrictive covenants can provide a critical part of the contract. However, in order to be of any use to employers, restrictive covenants must be enforceable, which means they must be reasonable. Fairness and balance are the keys to reasonableness, and well-drafted clauses that do not overreach the mark can be a useful tool to protect employers' interests.
View the case here.