Lengthier Notice Periods and Greater Challenges for Employers Bringing Non-Competition Cases

Lengthier Notice Periods and Greater Challenges for Employers Bringing Non-Competition Cases

Our office has been involved in two recent decisions of the Ontario Court of Appeal, which are likely to impact different areas of employment law in Ontario and across Canada.

S.I. Systems Partnership v. Geng et al – Lawsuit Claiming Breach of Non-Competition Clause Thrown Out with Costs

In S. I. Systems Partnership v. Geng https://www.canlii.org/en/on/onsc/doc/2020/2020onsc8086/2020onsc8086.html, the Court dismissed an appeal brought by S.I. Systems and upheld the complete dismissal of a lawsuit that SI Systems had brought against some former subcontractors claiming breach of a non-competition clause of a sub-contractor agreement.

SI Systems is a supplier of IT services to the RCMP, among other clients. The defendants were sub-contractors who were retained to provide IT services to the RCMP through SI Systems. They were retained because of their past experience in dealing with the RCMP. Initially, the subcontractors were hired without any non-competition clause in their subcontractor agreements. When SI Systems later won a new contract, it included a new non-competition clause in its agreements for the subcontractors, which it asked them to sign through an on-line portal. At least one of the subcontractors did not even realize that SI Systems had added the clause to the contract when he renewed his contract with SI Systems.

After the sub-contractors left SI Systems to work for another sub-contractor (doing other RCMP work), SI Systems sued for damages, claiming that the sub-contractors had breached the non-competition clauses. The Ontario Superior Court held that the non-competition clauses were overbroad – since they would have prevented the sub-contractors from doing any work with the RCMP, anywhere in the world, even work that had nothing to do with the work project that they were actually working on with SI Systems. In any event, SI Systems had not even bid on future projects with the RCMP, so it was unable to prove that it had suffered any damages.

On Appeal, the Ontario Court of Appeal dismissed the appeal in its entirety in a short endorsement, while adding a $30,000 award of legal fees to be paid to the respondents. This case demonstrates the difficulties that employers and contractors can face in pursuing non-competition lawsuits, especially where the non-competition clauses are overly broad.

Currie v. Nylene Canada Inc. – Long Service Employee Wins 26 Month Notice Award

The case of Currie v. Nylene Canada Inc. involved a 39-year employee a company and its predecessors. Ms Currie was dismissed on a without cause basis but offered a very short period of notice. At trial, the trial judge awarded the plaintiff 26 months’ compensation. The judge held that her case was exceptional and warranted a longer than usual notice period because:

(a) She left high school for this job which was the only full-time job she ever held;
(b) She worked for the company for 39 years;
(c) She was 58 when she was dismissed, near the end of her career;
(d) She had specialized skills, making it difficult for her to find other employment;–
(e) She had limited computer skills;
(f) The dismissal was tantamount to a forced retirement;

The judge reviewed all of the appropriate common law factors and also considered the Ontario Court of Appeal’s decisions in a number of cases including Lownds v. Summit Ford Sales and Dawe v. The Equitable Life Insurance Company. The Court of Appeal accepted the trial judge’s analysis and reasons and dismissed the appeal.

It is noteworthy that Nylene had also alleged that the plaintiff should be given a very short notice period because she had “retired” for the purpose of collecting a pension that she had earned with a predecessor company. Despite the allegations that she had “retired,” she actually continued to work for the company on all of the same terms and conditions. This argument that her “retirement” to collect a pension should be considered a “break in service” was roundly dismissed at trial and by the Court of Appeal.

One takeaway from this case is that long service employees, who have worked for one employer for most or all of their careers, are likely to fall into the “exceptional circumstances” category and may be entitled to notice in excess of the twenty-four month “soft cap” that the Ontario Court of Appeal has sometimes imposed.

A second takeaway is that litigants should try to go with their best arguments that seem to be reasonable in all of the circumstances. Advancing untenable positions is likely to irritate judges and cause them to award even more in damages to dismissed employees. We cannot say this was a key factor for the trial judge or for the Court of Appeal, but it certainly didn’t help the employer’s cause.

Congratulations to Melynda Layton who argued both of these cases at trial and at the Ontario Court of Appeal.