Glentel Inc. v. Jefferson, 2012 ONSC 3746

CITATION: Glentel Inc. v. Jefferson, 2012 ONSC 3746

DIVISIONAL COURT FILE NO.: 311/11

DATE: 20120625

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

SWINTON, NORDHEIMER AND CORBETT JJ.

BETWEEN:

GLENTEL INC.

Plaintiff/Respondent

– and –

MARTIN JEFFERSON, HAMILTON TWO-WAY LTD., TORONTO TWO-WAY LTD. and K.E.L. COMMUNICATIONS LIMITED

Defendants/Appellants

Stephen F. Gleave, for the Plaintiff/ Respondent

Daniel Ableser, for the Defendant/ Appellant, Martin Jefferson

HEARD at Toronto: June 25, 2012

SWINTON J. (ORALLY)

Introduction and Background

1The appellant Martin Jefferson appeals from a judgment of Whitaker J. dated May 16, 2011, which found him liable for a breach of a restrictive covenant in an employment contract and ordered him to pay $20,000 in damages and costs of $6,000 to the respondent Glentel Inc.

2The appellant entered into the employment agreement on July 1, 2006. Article III of the agreement dealt with non-competition, precluding the appellant from competing with Glentel during his employment and for four months after employment terminated.

3Article 3.07 stated:

As additional consideration for Jefferson’s agreement to the terms of this Article III, Jefferson shall be paid the following payments (individually and collectively hereafter referred to as the “Non-compete Payments”):

(a) a one time payment of $20,000 upon the execution of this Agreement paid to Jefferson by the Sellers; and

(b) so long as Jefferson is still employed by the Company on the one (1) year anniversary of this Agreement and has not breached or is not in breach of any of the terms of this Agreement, an additional one time payment of $20,000 paid to Jefferson by the Company.

4The appellant was paid $20,000 on signing and a further $20,000 on July 1, 2007. On March 14, 2008, he gave notice of his resignation, effective March 31, 2008.

5The trial judge found that the non-competition provisions were valid and enforceable. He also found that the appellant had engaged in a number of competitive acts in breach of those provisions. Beginning in January 2008, he engaged in discussions intended to lead to the creation of a competitor while he was still employed at Glentel, and he took steps to incorporate his holding company for the purposes of competing with Glentel before the formal end of his employment. The trial judge also found there was some competitive conduct by the appellant’s new employer or a related company. No appeal is taken from these findings of breach.

6The trial judge held that the respondent had not proved any loss of profit caused by the appellant’s activity. However, he held that the respondent was entitled to the repayment of $20,000 paid on July 1, 2007. He concluded that the payment had been made in return for the appellant’s promise not to compete as owner or employer with the respondent during the second year of his employment.

Issues

7The appellant raises two issues on appeal. He argues that the trial judge erred in his interpretation of Article 3.07 and in finding that the non-competition provisions were enforceable.

Analysis

8The interpretation of a contract is a question of mixed fact and law. The Ontario Court of Appeal has held in Gentra Canada Investments Inc. v. Lipson, 2011 ONCA 331, that the standard of appellate review is closer to correctness when the issue is the interpretation of contractual language (see para. 39).

9The trial judge erred in his interpretation of Article 3.07, as he failed to have regard to the clear words of the article. On its face, the article provides for a payment on the one-year anniversary of the signing of the contract, provided two conditions are met: the appellant continued to be employed by the respondent, and he was not in breach of the non-competition provisions. The appellant met those conditions and he was entitled to the payment.

10There was nothing in the language of the provision to support the trial judge’s conclusion that the payment was for a promise not to compete during the second year of his employment. As conceded by counsel for Glentel, the appellant could have left employment the day after receiving the $20,000 in July 2007. He would have been entitled to compete some four months later.

11The appellant obtained a signing bonus plus a further payment for staying on one year and not competing during that first year. On the facts found by the trial judge, he met the conditions in Article 3.07(b). Therefore, the trial judge erred in law in ordering the return of the $20,000 payment as damages.

12With respect to the second issue, we see no error in the trial judge’s finding that the non-competition provisions were reasonable in the circumstances and, therefore, enforceable. However, the trial judge found that there were no damages for the breach, and so the action must fail.

Disposition

13The appeal is allowed, the judgment of the trial judge is set aside, and the action is dismissed.

COSTS

Costs

14I have endorsed the Appeal Book, “This appeal is allowed for oral reasons delivered today. Costs of the appeal fixed at $6,000 all inclusive payable to the appellant. If the parties cannot agree on the costs of the trial, they may make brief written submissions through the Divisional Court office by July 13, 2012.”