ONTARIO
SUPERIOR COURT OF JUSTICE
(DIVISIONAL COURT)
B E T W E E N:
ROBERT MOFFATT c.o.b. RISING SUN MARTIAL ARTS and RISING SUN ACADEMY OF MARTIAL ARTS c.o.b. RISING SUN MARTIAL ARTS
Eugene N. Hretzay, for the Plaintiffs
Plaintiffs
(Respondents)
- and -
LOUIE SANCHEZ
Marnie C. Filderman, for the Defendant
Defendant
(Appellant)
HEARD: December 19, 2003
REASONS FOR JUDGMENT
SPROAT J.
Introduction
1This is an appeal by Mr. Sanchez from the judgment of the Honourable Deputy Judge B.W. King dated September 13, 2002 awarding the plaintiff $10,000 in damages plus pre-judgment interest and costs. The plaintiff claimed damages for breach of a non-competition agreement.
The Facts
2At the time of hiring the plaintiff, Robert Moffatt, the principal of Rising Sun Academy, informed Mr. Sanchez that he would be replacing a departed instructor of Rising Sun who had left and taken most of the students with him and that, as such, a non-competition agreement would be required. Mr. Moffatt testified that Mr. Sanchez said he had “absolutely no problem” with a non-competition agreement. Mr. Sanchez commenced employment with the Rising Sun Academy, in early July 1998, as the head Taekwon-do instructor.
3On July 26, 1998 Mr. Sanchez signed a “Non-Competition Agreement”, which provided that upon termination of employment Mr. Sanchez was prohibited from teaching at, owning or operating a martial arts school within a ten mile radius of the Rising Sun Academy which was located at 467 Speers Road in Oakville for a period of one year.
4On May 7, 2001, Mr. Sanchez submitted his resignation effective May 18, 2001, however, he did not return to work after May 10, 2001.
5Mr. Sanchez, in fact, moved to a half block away and with his girlfriend opened a Taekwon-do club at the same location as the Rising Sun instructor he replaced had operated his competing business. Mr. Sanchez became the head instructor. The business registration for the new business was dated approximately two months prior to Mr. Sanchez’s resignation.
Courts of Justice Act
6The Courts of Justice Act provides as follows:
- The Small Claims Court shall herein determine in a summary way all questions of law and fact and may make such order as is considered just and agreeable to good conscience.
27.(1) Subject to subsections (3) and (4), the Small Claims Court may admit as evidence at a hearing and act upon any oral testimony and any document or other thing so long as the evidence is relevant to the subject matter of the proceeding, but the court may exclude anything unduly repetitious.
(2) Subsection (1) applies whether or not the evidence is given or proven under oath or affirmation or admissible as evidence in any other court.
The Issues
7The appellant raises the following issues:
Whether this restrictive covenant was valid having regard to the principles set out in the case of Elsley et al. v. J.G. Collins Insurance Agencies Ltd. (1978), 83 D.L.R. (3d) 1 (S.C.C.) and Lyons v. Multari (2000), 50 O.R. (3d) 526 (O.C.A.).
Whether the non-competition covenant was invalid for lack of consideration.
Whether there was reliable or any evidence to support the damage award of $10,000.
Whether the defendant was entitled to a judgment on his counterclaim for unpaid wages due to him at the time of termination.
Issue One
8I am satisfied that this restrictive covenant is valid. The plaintiff has a proprietary interest in his contractual ongoing relationship with students of the school.
9The nature of the relationship between a student and teacher is such that a student would naturally want to follow a teacher with whom the student had an ongoing relationship. This was demonstrated tangibly to Mr. Moffatt by his experience with the previous instructor who left taking a large number of students with him.
10The temporal and spatial features of this covenant are also reasonable. The defendant could compete immediately if he moved only 10 miles away and unconditionally after one year. I note that in Lyons the Court of Appeal indicated that a five mile – three year covenant was reasonable and that in Elsley the Supreme Court of Canada upheld a restriction of competition in three communities over a five year period.
11In Lyons, the plaintiff was an oral surgeon who received referrals from other dentists. The defendant was employed as a dental surgeon but was “not the front man, or principal contact person”. There was, therefore, minimal risk of the referring dentists switching their allegiance. In our case Mr. Sanchez personified the plaintiff from the perspective of his students. This is not a situation such as in Lyons in which a non-solicitation covenant would provide reasonable protection.
12This covenant is also reasonable in the public interest. A small business should be able to protect itself from unfair competition.
Issue Two
13I am also satisfied that there was valid consideration for the non-competition agreement. Mr. Sanchez was told at the time of hiring that he would have to sign a non-competition covenant and the background to this request was explained to him. In other words, it was presented as part of the initial deal for which there is clearly consideration.
14In any event, given Moffatt’s previous experience, it is a reasonable inference that he would not have been prepared to continue the employment of Mr. Sanchez unless he signed the non-competition agreement. Put differently, if Mr. Sanchez had taken the position a few weeks into his employment that he would not sign the non-competition agreement and wanted to reserve the right to open up a competing business next door, I am satisfied that it is reasonable to infer that Moffatt would have terminated his employment rather than provide him with continued contact with students.
15Francis v. Canadian Imperial Bank of Commerce (1994), 21 O.R. (3d) 75 (O.C.A.) is distinguishable. In that case, the court found an employment contract had been concluded on terms and conditions that did not include a non-competition covenant and that the employer subsequently tendered a new contract, containing the covenant, for the employee to sign. In our case, the covenant was part of the original understanding of the parties.
Issue Three
16The onus is on the plaintiff to prove damages. While the evidence on damages could certainly have been more detailed, I am satisfied that there is an evidentiary basis for the award and I am not satisfied that the Deputy Judge has acted upon a wrong principle of law or has misapprehended the facts or has made a wholly erroneous estimate of the damage suffered.
17The evidence on damages includes the following:
(a) The competing business registered its business name and address on March 20, 2001, which supports the conclusion that efforts to dissuade students from staying with the plaintiff preceded the defendant’s resignation on May 7, 2001.
(b) Memberships are typically renewed on a yearly basis. Despite this, prior to the departure of the defendant, approximately twelve students asked for short term renewals. At this time there were rumours the defendant was leaving, which the defendant denied.
(c) Memberships in this area typically cost $500-600 per annum.
(d) A high percentage of students renew their annual memberships – on the order of 70% - 80%.
(e) When the defendant commenced his employment, there were 70-80 students, which increased to 200-300 by the time he left and then declined to 60-70 students. (It is unfortunate that the evidence was not more precise as to these numbers, but the impact of any lack of precision is not significant in that if only 20 students followed Mr. Sanchez at $500 each, this would amount to the $10,000 awarded.)
18Deputy Judge King calculated damages based upon the profit made by the defendant. This, however, also equated in his reasons with the loss suffered by the plaintiff as Deputy Judge King referred to students who “followed Mr. Sanchez” which would evidence both the gain of the competing business and the loss of the plaintiff.
19Given that the competing business was owned and operated by Mr. Sanchez’s girlfriend, the profit of the competing business is not necessarily the profit of Mr. Sanchez. This, however, is of no consequence in terms of the disposition of this appeal given that the same facts support the calculation of the plaintiff’s loss. Mr. Sanchez was directly responsible for the damages suffered by the plaintiff in that, but for the actions of Mr. Sanchez, the students would probably have remained with the plaintiff.
20Counsel for the plaintiff also points out that an alternative approach would be to regard the “profit” of Mr. Sanchez as the amount he earned from the new employment. Mr. Sanchez worked part time for the plaintiff and earned approximately $18,000 per annum. It would not be unreasonable to infer that he would not have quit his employment to take a lower paying job. This context also provides some additional support for the reasonableness of the damage award.
21As stated, there is evidence to support the award to the plaintiff. In the face of this evidence, the defendant acknowledged that “some” students followed him. The defendant had the ability to adduce evidence to identify the students and on that basis take issue with the plaintiff’s damage claim. The defendant, however, did not do so and this results in an adverse inference.
Issue Four
22Deputy Judge King said that he had “no doubt” that the damages actually suffered exceeded $10,000 and given his reasoning (and allowing for the error in the arithmetic) he clearly thought the damages substantially exceeded this amount. This is a reasonable basis upon which to not reduce the damage award on the basis of the $509 counterclaim.
Conclusion
23This appeal is, therefore, dismissed with costs. Based upon the submissions of counsel at the conclusion of the hearing of the appeal, I fix costs of this appeal to the respondent in the amount of $3500, plus applicable G.S.T.
___________________________
Sproat J.
Released: February 11, 2004
COURT FILE NO.: 02-BN-9539
DATE: 20040211
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
ROBERT MOFFATT c.o.b. RISING SUN MARTIAL ARTS and RISING SUN ACADEMY OF MARTIAL ARTS c.o.b. RISING SUN MARTIAL ARTS
Plaintiff
(Respondents)
- and –
LOUIE SANCHEZ
Defendant
(Appellant)
REASONS FOR JUDGMENT
SPROAT J.
Released: February 11, 2004