Competition, Solicitation and Medication… but No More Injunction

Written by Daniel Standing LL.B., Editor, First Reference Inc.

This is a complex Alberta case: 2022 ABQB 58 (CanLII)-both for its facts, and the law the court applies. At its heart, it’s an employment case because it deals squarely with an employer’s access to certain revenue, without which it can’t operate. Essentially, it’s about whether an interim injunction cutting a Calgary pharmacy off from a major segment of its client base should be allowed to stand. These clients, formerly the applicants, started buying their drugs across the street at a pharmacy run by some of its former employees. One gets the impression in reading the case that the heaping record would take weeks to read, but the court does a remarkable job distilling the tangled web of a past employment relationship and the parties’ subsequent business ventures and client bases, along with allegations of illegal competition and solicitation, breach of fiduciary duty, civil conspiracy, among other issues. Through the lens of the law, it ultimately became clear to Justice James Eamon that the injunction could no longer stand.

Getting to that finding was anything but simple.

After evidentiary admissibility rulings on secret video recordings and intercepted phone calls, the court focused on the heart of the matter: the tri-partite test for injunctions. Briefly, to get an injunction, a party first needs to show that it has a “strong prima facie case.” The judge agreed this elevated standard applies in Alberta by virtue of past decisions involving enforcement of restrictive covenants, but also, the judge offered, because the injunction impinged on the respondent pharmacists’ livelihoods and their networks of family, friends and other people. Perhaps by recognizing the importance of one’s employment and social network, the judge intended to foreshadow his eventual decision that it wasn’t appropriate to “burden the respondents in the pursuits of their livelihood before trial.”

In part of the ruling, the court rejects the past employer’s allegation that the new pharmacy’s principals had breached a fiduciary obligation. That would require a finding that these were “key employees’,” one the court refused to make. The court rationalized the departing pharmacists’ knowledge of and access to the clients’ patient information as “unavoidable,” something that commonly arises from an employee’s rapport with customers. The finding against a fiduciary relationship also meant a failure for the applicants past employer on the “serious issue to be tried” branch of the test.

The applicants other arguments on the competing pharmacy’s use of what it called confidential information were systematically rebuffed by the court. These concerning allegations of breach of confidence, breach of fidelity and conspiracy.

The court said there was a difference between working from memory and working from a stolen customer list. In this case, it was clear the new pharmacy communicated with the customers with whom it had relationships; the problem was there was no evidence that confidential information was discussed or otherwise misused. As for conspiracy to injure the victim, the court said the evidence did not rise above “speculation,” falling far short of the “strong prima facie case” standard that applies.

In addition to a strong case, the person asking for the injunction must be at risk of suffering irreparable harm. Here, the former employer was disadvantaged by its failure to establish that confidential information was abused. If proven, the court would have found that irreparable harm resulted from the loss of customer referrals, it said.

Finally, the person asking for the injunction must be favoured in the “balance of convenience” test. In other words, the court assesses which party stands to suffer the most if they lose. Here, the court noted that a relatively small proportion of the former employer’s overall client base was impacted, and there was no evidence about the amount of revenue it represented. It contrasted this with the drastic effect the injunction had on the new pharmacy’s ability to carry on. It would not even permit soliciting business based on relationships that arose after the pharmacists quit. In addition to other weaknesses in the case, the judgment also mentions the public interest in having open access to health services, particularly during the pandemic.

For those reasons, the court set the interim injunction aside, allowing the new pharmacy to carry on “at its peril.”

The key takeaways from this case could be many, depending on the topic of interest. Perhaps the primary lesson is to be slow to conclude that a breach of confidentiality has occurred. Just because the information is obtained through a person’s employment does not mean it is confidential (unless a contract states otherwise). It could simply be the inevitable by-product of a worker’s interactions with customers.

Similarly clear in this case is the stringent test that applies to interlocutory injunctions. The test is only satisfied using good evidence, and courts appear reluctant to decide such matters if they are left to speculate on key points.