Non-Competition Clause Can Increase Wrongful Dismissal Damages Award

Will a court award extra damages in a wrongful case where the employee is subject to a non-competition clause?  A recent Ontario case held that this would be entirely reasonable.

The case of Dimmer v. MMV Financial (2012 ONSC 7257) is a wrongful dismissal case involving a 50 year old senior vice president.  The plaintiff had been recruited by a corporate search firm and was employed for just under four years.  At the time he joined the company, he signed a one year non-competition agreement.  When he was dismissed on a without cause basis almost four years later, he abided by the non-competition agreement and was unable to find alternate employment for about a year.   At trial, he was awarded one year’s compensation, including compensation for his average historical bonus and his car allowance.

The defendant tried to argue that Mr. Dimmer had failed to mitigate his damages properly and had failed to conduct a sufficient job search.  But the Court pointed to the non-competition agreement and noted the difficulty that the plaintiff would have finding work while subjec to the agreement.  Moreover, the defendant was unable to demonstrate that there were available positions that the plaintiff could have obtained if he had taken different steps in the course of his mitigation efforts.

The Court held that the plaintiff was entitled to twelve months’ compensation, in part, because of the signficant level of responsbility, the high income level and the senior nature of the position that that plaintiff held.  In the circumstances, twelve months’ compensation was appropriate for a four year senior vice president.

Although this case does not address a large number of ground breaking legal principles, there are two interesting points that we can take from the decision:

1.  Senior executives will be entitled to significant notice periods even with relatively short service.  A one year notice period for a three to four year senior executive is within the reasonable range, even if it is at the higher end.

2. Courts may be willing to take into account draconian non-competition agreements when assessing notice.  For employers who choose to try to impose unreasonable non-competition agreements on their employees, they may wind up facing lengthier notice periods after dismissal.  Employees will not be required to try to get out of the non-competition agreement as part of reasonable mitigation efforts.

This reliance by the Court on a non-competition agreement in assessing notice is a useful step for plaintiffs.  In my view, it still does not go far enough.  To really level the playing field, courts should be willing to award damages for “loss of opportunity” where an employer has imposed an unreasonable non-competition agreement.  This would further ensure that employers make every effort to keep post-employment restrictions as narrow as possible to protect their reasonable proprietary interests.

For now, dismissed employees must choose between abiding by the agreement, ignoring it and facing litigation or commencing costly legal proceedings to obtain a court ruling on the enforceability of the agreement.  None of these steps are wholly satisfactory.  This recent Dimmer case provides employees with some comfort that they may be entitled to a lengthier notice period if they abide by an imposed non-competition agreement.




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