Case Study: Ambiguity Renders Restrictive Covenants Unenforceable

By Preston I.A.D Parsons and Kai Ying Chieh

When a key employee leaves an employer, they may be taking with them a history of specialized industry knowledge and a long list of loyal contacts. To prevent a loss of confidential information and unfair competition, employers often draft restrictive covenants to protect their business. Canadian courts have long been reluctant to enforce restrictive covenants however, finding that they are by default impermissible restraints on trade. As a result, employers often face an uphill battle in demonstrating that a restrictive covenant should be enforced.

A court's decision on whether a restrictive covenant is enforceable against the employee will ultimately come down to the exact wording of the restrictive covenant. The recent judgment by Justice Sewell in Telus Communications Inc. v Golberg, 2018 BCSC 1825 ("Golberg"), demonstrates that even very large employers can stumble when trying to restrict the post-employment activities of a former employee.

The Facts

The decision arose from an application for an interlocutory injunction by Telus. Telus sought to restrain the defendant, Mr. Golberg, from working with Rogers. Mr. Golberg had been a vice-president at Telus starting in November 2005. He became dissatisfied with his prospects for advancement to the senior vice-president level at Telus. Eventually, in August 2018, he resigned from his job and accepted a senior vice-president role with Rogers.

In bringing the application to enjoin Mr. Golberg from taking the Rogers job, Telus pointed to a restrictive covenant signed by Mr. Golberg that read as follows:

Accordingly the vice‑president agrees as follows: A) during the term of the vice‑president's employment with Telus or TeleMobile (determination) and for the trial period immediately following the date that the employment of the vice‑president ceases (determination date) regardless of who initiated the termination and whether the termination was with or without cause, the vice‑president will not, without the prior written consent of Telus, directly or indirectly either individually or in partnership or jointly or in conjunction with or on behalf of any person or persons, firm, association, syndicate, corporation or other enterprise, as principal, agent, employee, director, officer, shareholder or contractor or in any other manner whatsoever:

1) carry on or be engaged in executive, management, supervisory or strategic work or participate in, make decision ins respect of, direct, assist with, contribute to, advise on, provide consulting or other services in respect of any strategic management, supervisory or executive matters for any person or persons, firm, association, syndicate, corporation or other business enterprise engaged in or concerned with or interested in any business which is competitive with the business of Telus within the provinces of British Columbia, Alberta, Ontario and Quebec. [emphasis added]

Mr. Golberg took the position that the covenant was unenforceable because it was overbroad, ambiguous and uncertain.

Key Points of Analysis

Justice Sewell noted that the onus was on Telus to establish that the restrictions in the restrictive covenant were reasonably necessary to protect Telus' interests without unduly restricting Mr. Golberg's freedom to make use of his talents. Based on this standard, Justice Sewell found that Telus had not met that onus for a few key reasons:

  • 1.The restrictive covenant was overbroad.

While Mr. Golberg was employed in Telus' telecommunications division, Telus acts in many sectors other than telecommunications. Justice Sewell noted that it would have been reasonable for Telus to be concerned about protecting its telecommunications business, but his reading of the restrictive covenant was that Golberg would have been restricted from any company competitive with any of Telus' endeavours. This was a particular problem given the size and scope of Telus' activities - and those of its affiliates. Thus, Justice Sewell ruled that the covenant was unenforceable for being overbroad.

  • 2.The restrictive covenant was unclear.

Telus argued that the language was clear about the nature of a competitive business that would trigger the restrictive covenant; however, Justice Sewell pointed to the phrase "or in any other manner whatsoever" and said that the preceding specificity in the clause was lost by the addition of this phrase.

  • 3.Telus' allegations of a breach of fiduciary duties did not substantiate an injunction.

Telus also argued that, in any case, Golberg breached his fiduciary duties to Telus by negotiating terms of employment with Rogers, and that the only appropriate remedy was to permit the injunction. Justice Sewell found that Mr. Golberg should have provided frank and full disclosure to Telus about his employment situation, and sent two emails that were also breaches of his duty. Notwithstanding these breaches, Mr. Golberg was entitled to compete with Telus in the absence of an enforceable restrictive covenant.

Takeaways

As demonstrated by this case, courts will consider various factors when determining whether a restrictive covenant is enforceable. These factors may include, and are not limited to:

  • The employee's position and role within the company (i.e., is the employee so important or specialized that a restrictive covenant is reasonable?)
  • Who is meant by "competitors" or "customers" of the business for the purposes of a restrictive covenant against the employee (i.e., are the restrictions reasonably limited and not ambiguously defined?)
  • The size of the employer and the scope of their operations
  • The geographic and temporal scope of the restrictive covenant

A restrictive covenant can be helpful to employers hiring key employees by setting out the expectations of the employer and employee in advance; however, careful drafting is required and not easy to achieve. Ambiguity is usually fatal to an employer's case for enforcement. For the reasons demonstrating by this case, we encourage employers to carefully consider the specific business interests they want to protect and to seek legal advice in order to properly tailor a restrictive covenant to protect only those interests.