COURT FILE NO.: CV-13-2074-01

DATE: 20131104

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Planit Search Inc., Plaintiff

AND:

Michael Mann (also known as Michael Soucy), Grady Management Group Inc. and 6460224 Canada Inc. Defendants

BEFORE: Ricchetti, J.

COUNSEL: M. O'Connor and M. Gayed, Counsel, for the Plaintiff

R. Weir and A. Guy, Counsel, for the Defendants

HEARD: October 28, 2013

ENDORSEMENT

THE MOTION

[1] This is a motion by the Plaintiff seeking an interlocutory injunction against the Defendants in the terms set out in the Notice of Motion.

THE FACTS

The parties

[2] The Plaintiff (Planit) is a placement agency which specializes in IT personnel with expertise in enterprise resource planning (ERP) software. Planit has been operating since 1999.

[3] The Defendant, Michael Soucy (Soucy) is a commissioned recruiting contractor. His duties were to post available positions, identify and contact potential employee, set up interviews with possible candidates and place selected candidates in the available positions.

[4] 6460224 Canada Inc. was a company incorporated by Soucy in 2009 but dissolved shortly thereafter in 2009.

[5] Grady Management Group Inc. is a recruiting company (Grady). It competes with Planit at least on some levels of the IT placement business.

[6] Soucy was employed by Planit during the following periods:

• 1999-2000;

• 2002-2004; and

• 2009-March 2013.

[7] In between these periods, Soucy worked as a recruitment contractor for competitors of Planit. Soucy now works for a competitor - Grady.

The Database

[8] What is at the heart of Planit's motion is the use of Planit's database or databases which list candidates and clients. Planit alleges that "The Plaintiff's database of candidates and clients is confidential and it contains proprietary information".

[9] "Candidates" and "clients" are not defined terms in the written agreement between the parties described below. However, the position of Planit is that candidates and clients are all those persons and companies listed in its databases. See paragraphs 2-6 and 11-14 of the Planit's factum.

[10] During the 14 years during which Planit has operated, it has created a database of about 80,000 IT candidates, being persons with IT expertise mostly in the ERP area.

[11] Planit also created a database which includes approximately 12,000 clients who use IT personnel with the required IT skills.

[12] The information in the databases are organized and collated using a program called Maxhire.

[13] Clearly, not all the candidates in the database are looking for a job or re-placement at any one time. Similarly, not all the clients are looking for IT personnel at any one time.

[14] Some of the candidates and clients in the databases have never been involved in any business arrangement with Planit. The candidates in the database are better described as candidates and potential future candidates. Likewise, the clients in the database are better described as clients and potential clients.

[15] The databases were available to Planit employees to help them generate business for Planit.

[16] There are several other significant points regarding the databases:

• a number of the candidates in the databases have the information regarding their IT expertise derived from a public database such as "Linkedin" or a similar public source. The list of candidates does not just include those Planit has placed in the past but also the names of potential candidates who they might contact in the future – some of which information would have been obtained by Planit from public sources;

• similarly, the list of clients does not just include those clients who have used Planit's services in the past but also includes companies which might use Planit's services in the future because they employ such personnel which information would have been obtained from public sources. Clearly, a number of the clients are known as hiring IT personnel with particular skills. For example, one of the clients in the databases is IBM. There can be no doubt that a number of the clients are publicly known to hire individuals with IT skills from time to time; and

• this list of clients and candidates in Planit's databases have not been produced. Planit does not wish to do so. It is not known how the databases were created, updated or whether there was a list as of the date Soucy started to work at Planit in 2009 or a list as of March 2013. If the terms of the Agreement were to be enforceable, it would be impossible to know with any specificity which candidates or clients were on that list.

[17] I have no doubt that having compiled such a list in its databases is a valuable tool for Planit and its employees. However, it would be wrong to say that all the information in the databases is confidential information. The physical list, whether in print or electronic, is confidential. Some of the information in the databases might even be confidential such as a Planit's placement's salary, term of contract etc.

The Agreement

[18] In 2009 Soucy and Planit executed an agreement dated June 29, 2009 (Agreement). There is a disagreement as to how the Agreement came to be executed but it is sufficient for this motion's purpose that it was signed by both parties.

[19] The Agreement provides:

• the Term was for three months renewable and could be terminated at will;

• Soucy was a commissioned sales person with a title of Senior Accounts Manager, reporting to an Operations Manager;

• Planit provided Soucy with an office and technical support;

• Soucy would, during the course of his employment, acquire trade secrets, confidential information and information concerning candidate and client relationships. Confidential information was information not generally known to the public or Planit's competitors;

• future use of "information concerning candidate or client relationships" would cause loss to Planit;

• Soucy agreed that upon termination of the Agreement, he would not, in addition to a period of one year not induce any employee of Planit to leave Planit:

o For a period of one year, approach, contact, solicit, divert or accept Information Technology candidates, regardless of technical or business skill, to provide services on a temporary or permanent basis to any individual, corporation or other entity which prior to the termination of the Term of Utilization was a client or candidate of Plan IT Search Inc.

o For a period of one year, approach, contact or solicit any individual, corporation or other entity which prior to the termination of the Term of utilization was a client of Plan IT Search Inc.

(emphasis added)

• not to divulge any confidential information or trade secrets concerning Planit's clients, Consultants, contract or permanent candidates and placed contract or permanent candidates.

The End of the Relationship

[20] The relationship between Soucy and Planit came to an end in March 2013. There is disagreement as to how the relationship terminated and who terminated the relationship. It is not necessary to decide that issue on this motion.

[21] This is not a situation where it is alleged or shown that Soucy took any list or document (electronic or otherwise) which contained the candidate or client names in Planit's databases.

[22] After his departure from Planit, Soucy contacted some potential candidates including, Yury Pokusaev, Bisi Ilori, and Vic Balian, which Planit alleges are “its candidates” from the databases and IBM, which Planit alleges is “its client” from the databases, for the purpose of placing employees in the IT area.

[23] It is not known whether these persons or company are in Planit's databases or what information there is about them. It is not known if they were actual candidates and clients of Planit or potential candidates or clients. It is not known whether the information regarding them is publicly available or known to competitors in the industry. It is not known whether they have a contract with Planit and, if so, on what terms.

[24] Soucy has been actively engaged in IT recruitment in this area since the end of March 2013.

[25] While Planit takes some issue with Soucy allegedly trying to induce one of Planit's employees to leave Planit, no such claim is advanced in the motion.

THE ANALYSIS

The Law

[26] Section 101(1) of the Courts of Justice Act provides:

In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.

[27] The applicable test is set out in RJR Macdonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311. The moving party must show:

i. a serious issue to be tried;

ii. it will suffer irreparable harm if the injunction is not granted; and

iii. the balance of convenience favours granting the injunction.

[28] In cases involving injunctions seeking to restrain a former employee from competing with, or soliciting customers of, his former employer, the moving party must establish a strong prima facie case in order to meet the first branch of the RJR-MacDonald. See Medtronic of Canada Ltd. v. Armstrong, [1999] O. J. No. 4860, Poppa Corn Corp. v. Collins, 2005 WL 845527 (Ont. S.C.J.); 1259695 Ontario Inc. v. Guinchard, [2005] O.J. No. 2049 (S.C.J.); Jet Print Inc v. Cohen, [1999] O.J. No. 2864; Gerrard v. Century 21 Armour Real Estate Inc., (1991), 4 O.R. (3d) 191 (Ont. Ct. Gen. Div.); Sherwood Dash Inc. v. Woodview Products Inc., [2005] O.J. No. 5298.

[29] As explained by Nordheimer J. in Jet Print Ink, at para. 11:

... when the injunction sought is intended to place restrictions on a person's ability to engage in their chosen vocation and to earn a livelihood, the higher threshold of a strong prima facie case is the more appropriate test to be applied.

Is Soucy a Fiduciary?

[30] Planit submits that Soucy was a "fiduciary in nature".

[31] Justice Brown in Boehmer Box L.P. v. Ellis Packaging Limited et al described a number of examples where the courts have found departed employees to be fiduciaries and where they have not:

[41] As noted by Wilson, J., at para. 60 of her dissenting reasons in Frame v. Smith, [1987] 2 S.C.R. 99, relationships in which a fiduciary obligation have been imposed generally possess three characteristics: (i) the fiduciary has scope for the exercise of some discretion or power; (ii) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; and, (iii) the beneficiary is peculiarly vulnerable to, or at the mercy of, the fiduciary holding the discretion or power.

[45] In the employment context the category of fiduciaries is not confined to the directors or officers of a company. Senior level employees who form part of the management of a company have been impressed with fiduciary duties. Such employees are in the position to unilaterally exercise their authority in a way that could affect their employer’s legal and economic interests: see, for example, T. Edgar Alberts Ltd. v. Mountjoy, supra. (a general manager in operational charge of the insurance brokerage office), and Anderson, Smyth & Kelly, supra. (a manager of regional office responsible for its day-to-day operations.)

[46] Some courts have imposed fiduciary duties on employees who are not part of management, the so-called “key personnel” or “key employees”. Counsel placed before me several cases where courts have found a non-management employee to owe fiduciary obligations to his or her employer:

(i) A placement director of a personnel agency who had the exclusive right to deal with particular clients. No other employee could take orders from the client, and the person had access to confidential information as to clients’ needs, preferences and accepted rates: Quantum Management Services Ltd. v. Hann (1989), 69 O.R. (2d) 26 (H.C.J.); affirmed on appeal without comment on the finding of the existence of a fiduciary duty:, (1992), 11 O.R. (3d) 639 (C.A.);

(ii) A sales manager, who had exclusive contact with customers and had access to employer’s confidential information about the customers: Radd Precision Inc. v. Lall, (1996), 65 C.P.R. (3d) 223 (O.C.J., Gen.Div.); leave to appeal denied;

(iii) A senior employee who placed consultants with clients. She had the exclusive right to place particular consultants, but no exclusive right to deal with any client. The employee had access to confidential information about consultants: Messa Computing Inc. v. Phipps, 1997 WL 1931868 (Ont. Gen.Div.);

(iv) A salesmen who played a key role in the day-to-day operations of the business and who formed part of a leadership team that co-ordinated the activities of other employees: EII Ltd. v. Dutko, [1997] M.J. No. 225 (Q.B.); and,

(v) A salesman who had responsibility for all clients within a geographic area and independent authority for decisions, including type of payment and choice of manufacturer, and who had access to all information relating to customers in the particular area: 1259695 Ontario Inc. v. Guinchard, [2005] O.J. No. 2049 (S.C.J.).

[47] In other cases courts have not been prepared to extend fiduciary obligations to non-management employees:

(i) The person was one of a large number of account executives, although each account executive had exclusive contact with a set of clients: Tomenson Saunders Whitehead Ltd. v. Baird, (1980), 7 C.C.E.L. 176 (H.C.J.);

(ii) The defendant manned the company’s order desk and had some responsibility for hiring staff: R.W. Hamilton Ltd. v. Aeroquip Corp, (1988), 65 O.R. (2d) 345 (H.C.J.);

(iii) A sales manager had some control over establishing prices and he coordinated outside sales efforts and some purchasing of products: EM Plastic & Electric Products Ltd. v. Alliance Sign Supply Inc., (1988), 23 C.P.R. (3d) 55 (H.C.J.);

(iv) Although a sales person had exclusive sales relations with two key customers, the relationships did not involve the kind of confidential information and intimate relationships at issue in the Quantum, supra., case: C.H.S. Air Conditioning Ltd. v. Environmental Air Systems Inc. (1996), 20 C.C.E.L. 123 (Ont. Gen. Div.); and,

(v) A sales person who worked in a company where each sales person regarded customers as his own: Poppa Corn Corp. v. Collins, 2005 WL 845527 (Ont. S.C.J.).

[48] The result in each case was quite fact-driven and required the court to assess the degree of trust and confidence placed by the employer in the employee. In his text, Fiduciary Duties in Canada, Mark Ellis notes that while courts have adopted a “key personnel” test under which a non-management employee may be found to owe fiduciary duties, he argues, at p. 16-9, that the application of the test should be confined to cases where the employer has vested a high degree of trust and confidence in the employee. Where an employer has not, the mere fact that an employee generates a significant portion of a company’s sales should not be sufficient, in and of itself, to attract fiduciary duties.

[49] A nice summary of the policy principles at play in this area can be found in the decision of the British Columbia Court of Appeal in Barton Insurance Brokers Ltd. v. Irwin, (1999), 1999 BCCA 73, 170 D.L.R. (4th) 69 (B.C.C.A.) where the court stated, at para. 39:

…the general interest of the public in free competition and the consideration that in general citizens should be free to pursue new opportunities, in my opinion, requires courts to exercise caution in imposing restrictive duties on former employees in less than clear circumstances. Generally speaking…the law favours the granting of freedom to individuals to pursue economic advantage through mobility in employment.

[50] Adams J., in C.H.S. Air Conditioning, supra., at page 23, pointed to one factor which he thought prompted courts to find that an employee stood in a fiduciary relationship with his or her employer: “where former employees exploit obviously and highly confidential information in a manner that strikes a court as grossly unfair, it is more likely that a fiduciary obligation will be found to exist or that the information will be treated as the equivalent to a trade secret.”

[51] In assessing any situation involving a non-management employee, it strikes me that a court must balance competing considerations. Most employees possess some knowledge of economic value about their employer’s business, but our economic and legal systems place great stock in the ability of persons to move from employer to employer in the pursuit of better opportunities. Such is the life-blood of a competitive economy. Yet, just because an employee is not part of management does not mean that an employer may not have reposed a larger the normal amount of trust in the employee, such that when he or she leaves the company the employee may be able to affect adversely the interests of the employer more so than would the average employee.

[52] Factors, in my view, that have led courts to find the existence of this above-average level of trust in a non-management employee include the employee’s exclusive relationships with customers of the employer and the ability of the employee to act unilaterally to bind the employer’s interest by setting prices or concluding contracts. Supervisory responsibility over other employees, shy of being part of the formal management structure, also has operated as a factor pointing to a potential fiduciary relationship. Obviously these factors are not exhaustive, but they reflect circumstances where an employer has placed a higher degree of trust and confidence in a person than in most employees, with the resulting ability of that person to affect the economic interests of the employer.

[32] In this case, Soucy was a "Senior Account Manager" for Planit. He did not have persons reporting to him. He reported to a manager who reported to the owner of Planit.

[33] There is no evidence that Soucy was in a position to make any managerial or corporate decisions on behalf of Planit. He had no discretion to make such decisions on behalf of Planit. There is a suggestion that Mr. Soucy may have been present during some "merger" discussions but it is not alleged Mr. Soucy had any input into the corporate discussions or any input regarding whether to pursue such discussions. Given his previous comings and goings at Planit, it is hard to imagine that Planit would consider him a key or high level employee or provide Soucy with any discretionary authority for serious matters. Soucy's evidence in this regard makes much more sense.

[34] There are no other hallmarks of a fiduciary relationship. There was not an "above-average level of trust" in or responsibility given to Soucy - Planit's managers did not even want to hire Soucy in 2009 and the owner of Planit stated that he had been in rehab and had been previously caught stealing from Planit on two occasions which led to Soucy's termination twice. This is hardly the kind of person Planit would put in a senior or key position in the company.

[35] The fact that Mr. Soucy may have been privy to Planit's databases which might have contained some confidential information regarding candidates or clients to perform his work, does not by itself, mean that Mr. Soucy was a fiduciary of Planit.

[36] The list of "indicia" set out in paragraph 28 of Planit's factum hardly comes close to establishing a fiduciary relationship.

[37] I am not persuaded that Planit has established Soucy was a fiduciary.

Is the Restrictive Covenant Prima Facie Enforceable?

[38] There are many difficulties with this restrictive covenant:

a) there is no geographical restriction. By its terms, IBM worldwide would be off limits to Soucy;

b) the restriction with respect to any client or candidate of Planit "regardless of technical or business skill" is overly broad. In other words, it is not limited to ERP but to any persons who are clients or candidates of Planit;

c) Who are candidates and clients of Planit are not identified. Is it at the time of hiring? Is it at the time of termination? Or, as it is now alleged by Planit, all candidates and clients in Planit's databases? There is either ambiguity or the definitions are overly broad. As I stated above, the real focus in the submissions was on the names in the databases. Perhaps, if what was intended to be protected was Planit's candidates and clients which Soucy was working on as of the date of termination, this may have narrowed the scope of the clause making it more focused and reasonable. However, that is not what the clause seeks to protect. The clause, according to Planit, seeks to prevent Soucy from dealing with all the names in Planit's "database of candidates and clients" - including those in the database who are not and have never been candidates or clients of Planit or those potential candidates publicly known to be looking for IT work or clients known to be looking for IT candidates. This makes the scope of the clause extremely broad and therefore, an unreasonable restriction on Soucy;

d) Some clients of Planit are and have been clients of Grady. One such example is Syntax. The injunction sought would prevent Grady and Soucy from dealing with an existing or former client of Grady, which client existed prior to Soucy becoming employed by Grady. This would result in an unfair competitive advantage to Planit;

e) Other than alleging that Soucy had access to "confidential information" at Planit and is now contacting some candidates and clients known to Planit, there is no evidence that Soucy has generated potential candidates or clients through the use of Planit's databases. Soucy did not and does not have access to the Maxhire program. Soucy does not have a copy of the list of candidates and/or clients in Planit's databases; and

f) There is no way to determine which candidates or clients in the databases are generally known to the public or the industry. For example, LinkedIn has its own publicly available service (for a fee) to recruiters to find qualified potential candidates in the IT field. Soucy subscribes to this Linkedin service. Monster is another public source of potential candidates in the IT field. The fact Planit may have assembled the information in one or more databases and perhaps, even arranged the information in some useful manner, does not make the underlying information, as opposed to the list, proprietary to Planit deserving of protection by way of an injunction.

[39] The inability to determine the names of the candidates or clients in the database is fatal to Planit's motion. Even if all of the candidates and clients listed in the databases were truly confidential or even had all been Planit contracted candidates and clients, how is a departing employee to know which candidates and clients are in the database and which are off limits? There is simply no manner in which an injunction could be enforced involving 80,000 unnamed candidates and 12,000 unnamed clients. Langdon J. in Madison Chemical Industries Ltd. v Walker [2000] O. J. No. 1125 (Sup. Ct.) dismissed an application for an injunction where these same difficulties were encountered with enforcement:

26 Little needs to be said about the non solicitation clause because it fails with the non competition clause. It, too, is cast too broadly. As it turned out, Madison found itself complaining, rather ridiculously, that Mr. Walker had had “contact” with members of its customer companies because either he or they had telephone communication for purely personal reasons, e.g., to inquire about the birth of his child. One of the customers had asked Mr. Walker to review a paper he intended to present at a trade gathering. A prohibition on this kind of contact obviously exceeds what is necessary to protect Madison’s trade contacts or secrets. As well, the naming of every contact in Madison’s data base was excessive. It named every possible kind of contact or reference, not merely key or important contacts. Moreover, the data base was not “frozen” or even printed out at the time of Mr. Walker’s termination. He was certainly not left with a copy of it. Because it is a constantly changing body of information, it cannot be recreated as of January 8, 1999. Thus the covenant is impossible to enforce because there is no means by which anyone can know with certainly what contacts were in it on the day of termination.

[40] A similar comment was made by the Court of Appeal in Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344:

[29] In oral argument, counsel suggested that in practice, the appellant could contact the company and vet with it any potential customer he was contemplating contacting, and the company could advise if that contact is on the prohibited list, and further whether the company would be willing to allow him to contact the customer in any event. On further discussion, it was acknowledged that this suggestion would be unworkable for the appellant, nor is it realistic where the parties are in ongoing litigation. In any event, there is no legal basis for it in the agreement itself.

[30] Effectively, because the appellant cannot know which potential customers are off-limits to him, he is prohibited for one year from dealing with any business that may have been a customer of the company. The restriction is therefore not only ambiguous in its practical implementation, but effectively prohibits the appellant from competing with the respondent for one year.

[31] After conducting the balancing process between the rights of the respondent to protect its trade secrets and customer information, and the public interest in free and open competition, in the context of the agreement as a whole and the role of the appellant in the company as a salesman, I conclude that the complete prohibition on competition for one year is overly broad as well as unworkable in practice and makes the restrictive covenant unreasonable and unenforceable.

[41] An injunction along the terms sought would essentially put Soucy out of work for a year and deprive him of the ability to put his general knowledge and skills in the IT placement industry to work. Essentially, the injunction would prohibit competition from Soucy even where the candidate or client is well known to the entire industry.

[42] I was extremely surprised when Planit submitted that Grady should be prohibited from contacting any candidates or clients in Planit's databases. This position was advanced regardless of whether Grady knew the candidates or clients or had a prior relationship with Grady. Essentially, Planit was also seeking to prevent Grady from competing with Planit for a period of time. This demonstrates the over breadth of the injunction sought by Planit.

[43] The restrictive covenant in these circumstances is not reasonably required to protect Planit's legitimate confidential information and trade connections which Soucy may have been involved with during his employment at Planit. This is particularly so, where the employment agreement in this case could be terminated at will - even within days of hiring Soucy and thereby preventing Soucy from contacting any candidate or client in Planit's database, regardless of whether Soucy had ever dealt with them.

[44] For the above reasons, I am not persuaded that Planit has established a prima facie case that the restrictive covenant is enforceable.

Balance of Convenience and Irreparable Harm

[45] While it is not necessary to deal with these two branches of the RJR Macdonald test since Planit has failed to establish the first branch of the test, let me make a few comments on these branches of the test:

a) Soucy has been competing since the end of March 2013. Any injunction granted at this time would only continue until March 2014. An injunction at this stage would be unduly disruptive to the business not only to Soucy but also to Grady;

b) An injunction would essentially put Soucy out of work. It would essentially put Grady out of work; and

c) It will be possible at trial to determine which persons have been placed by Soucy through Grady and the amount of fees which were generated. Damages would be reasonably easily quantifiable. I am not persuaded that Planit has established that its market share would erode and damages would be difficult to assess. After all, Soucy has come and gone before from Planit to work for competitors. The record before me is thin on what candidates or clients on Planit's database have been successfully approached by Soucy - and given that it is more than 7 months since the termination, there should be an ample record available on the impact to Planit. The record before me simply does not establish a loss or even likely loss of market share.

[46] I would not have found that Planit established that, without the injunction, it would suffer irreparable harm or that granting the injunction favoured the balance of convenience.

CONCLUSION

[47] Planit's motion is dismissed.

COSTS

[48] Any party seeking costs shall serve and file written submission on entitlement and quantum within two weeks of the release of these reasons. Written submissions shall be limited to 3 pages, with attached Costs Outline and any authorities.

[49] Any responding party shall have one week thereafter to serve and file responding submissions. Written submissions shall be limited to 3 pages with any authorities relied on attached.

[50] There shall be no reply submissions without leave.

Ricchetti J.

Date: November 4, 2013