CITATION: Canada Fine Parts and Supplies Inc. v. Wang, 2016 ONSC 2457
COURT FILE NO.: CV-15-00540864
DATE: 2016/05/25
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CANADA FINE PARTS AND SUPPLIES INC.
Plaintiff
– and –
PEI WANG, also known as MIKE WANG, and PEI WANG carrying on business as “FIVE DIMENSIONS”
Defendants
Christopher Stienburg, for the Plaintiff
Ellen Low, for the Defendants
HEARD: April 8, 2016
G. DOW, J.
REASONS FOR JUDGMENT
[1] The plaintiff seeks injunctive relief restraining its former employee, the defendant and his company from ongoing solicitation and doing business with the plaintiff’s existing customers. The analysis requires an application of the three part test in R.J.R.- Macdonald Inc. v. Canada, 1994 CanLII 117 (SCC), [1994] S.C.J. No. 17, which provides:
is there a serious issue to be tried;
will the applicant suffer irreparable harm if the injunction is not granted;
which party will suffer the greatest harm from granting or refusing the injunction, that is, where does the balance of convenience lie.
Background
[2] The plaintiff company has been in existence since 2005 and has only three shareholders and about 15-20 employees. The company was founded by Anthony Tang (“Tang”) in 2005 who identified himself as CEO, director, the majority shareholder of the plaintiff with “limited English skills” and “certainly not conversational”. Its revenue peaked in 2014 and dropped by just under $1,000,000 in 2015. The defendant was hired in November, 2010 as the General Manager but whose duties were originally described and, in fact, were more like that of a Sales Manager. The parties are all Mandarin speaking with the defendant also being fluent in English which allowed him to more effectively and to a wider client base promote the plaintiff’s primary product, being many varieties of construction nails for sale in Southern Ontario to, principally, hardware stores and construction companies.
[3] The defendant was hired, and given a salary and bonus structure that permitted him to earn just over one-half of what the principal owner of the company, Anthony Tang was drawing as income. The defendant, Wang did not sign any non-competition or non-solicitation agreement when hired although he was asked to draft one for other (new) employees in 2011. This agreement attempts to restrict employees of the plaintiff from competing for a period of three years (which, in my view, is a length of time that is likely unenforceable).
[4] In 2012, the defendant asked about becoming a shareholder and was offered 10 percent of the company for an amount that was more than four times his annual income. This was later reduced by one-half for one-half of the amount of shares and was not acted upon.
[5] In mid-2014 the defendant, Wang, created Five Dimensions and started selling high end automobile rims on his own time. The financial statement for his company, Five Dimensions indicates revenue of less than one percent of the plaintiff company for 2014.
[6] The defendant, Wang requests and is granted a paternity leave following the birth of his first child and his wife’s subsequent illness between December, 2014 and April, 2015. He admits the revenue from Five Dimensions in January to June, 2015 is $42,000. He is now also selling snow shovels (which the plaintiff company does not sell) and work gloves (which the plaintiff company does sell).
[7] The defendant, Wang, resigns his position May 12 with four weeks’ notice and begins competing against the plaintiff now also selling its main product, that is a variety of construction nails. The defendant, Five Dimensions’ revenue for the balance of 2015 is about 50 percent of the drop in revenue of the plaintiff for its entire year of 2015.
Serious Issue to be Tried
[8] The plaintiff submits the test should not involve a prolonged or detailed examination of the merits and, save the exceptions (not applicable here) it is a low threshold or, as stated in paragraph 55 of R.J.R.- Macdonald Inc. v. Canada, supra, after determining the claim is “neither vexatious nor frivolous”, I should proceed to consider the second and third test. Given defence counsel acknowledged that the sale of gloves by its client prior to his resignation June 12, 2015 was a basis for damages in favour of the plaintiff (but not injunctive relief), it appears the plaintiff has satisfied the first part of the test for the relief sought.
Issue – Irreparable Harm
[9] The plaintiff submits, as indicated in paragraph 64 of the R.J.R. - Macdonald Inc. v. Canada, supra decision that this is harm which cannot be quantified in monetary terms. In this regard, the plaintiff points to the importance of customer loyalty and the defendant competing with the plaintiff (with some success). The plaintiff also argues the position as General Manager of the defendant made him a fiduciary of the company but can only point to its letter of November 16, 2010 confirming the offer of employment included the phrase to “be responsible for the interest of all company shareholders” as evidence in writing of same. As the General Manager, and with the ability to speak English fluently, the defendant was in a unique position with intimate access to the plaintiff’s corporate strategy and pricing.
[10] The plaintiff submitted that in East Asian business culture, the title of General Manager (as opposed to Sales Manager) has added respect and can be perceived as the equivalent to President or Chief Operating Officer. However, it also relied on Wang’s ability to speak English as particularly important to the extent he or larger clients had only spoken to Wang (as opposed to Tang). This, in my view, undermines this argument as the inference I draw is those clients, who do not speak Mandarin, are not of the East Asian business culture and would not have the perception noted.
[11] However, in my view, were this of the great importance the plaintiff claims, they would (or should) have taken greater care to secure the obligation of the defendant whether it be by written clauses in an employment contract securing the restriction it seeks (which attaches fiduciary duties), or by the payment of compensation closer to that of shareholders working for the company or granting him shares in the company.
[12] Returning to the claim of irreparable harm, the plaintiff submits its business has been placed in jeopardy. Further, it submits it may not be able to collect a damages award from the defendant if the injunction is not granted. I have difficulty with these submissions as, from the evidence, it is clear that there were supply problems in the plaintiff’s business prior to the defendant’s departure. Further, the sales of the defendant in 2015 represent only 50 percent of the downturn in sales of the plaintiff for that year. There was no explanation tendered for the other 50 percent drop in sales. It is clear the business is a very price sensitive and delivery competitive one. I am also concerned that while the defendant has obtained a real estate licence and had $60,000 in sales, it is his not his primary line of work. His primary occupation for the last five years has been the sale of many varieties of construction nails, work gloves, snow shovels and high-end automobile rims. The plaintiff’s request effectively removes the defendant’s primary ability to earn a living.
[13] Further, the plaintiff’s evidence was that Wang replaced a former “business partner” without detailing what, if any, steps were taken to ensure that individual did not proceed to unfairly compete against it or what similar steps were taken in hiring Wang to secure him as a fiduciary of the company. It is not disputed Wang was previously an Import Analyst in Global Sourcing at Canadian Tire before being hired by the plaintiff and required mentorship due to his inexperience in the plaintiff’s business.
[14] With regard to whether Wang was a fiduciary of the plaintiff, it relied on the reasons in Computer Enhancement Corp. v. J.C. Options, 2016 ONSC 452, where the former employee-defendant was a top sales representative and was making $896,000 per year. He had signed a non-competition contract limiting his right to compete with his employer-plaintiff for six months. The issue of fiduciary is dealt with in paragraph 61 to 79 and while describing “the hallmarks of fiduciary relationship” in paragraph 70, it is noted the difficulty lies in the application of the definition to the facts at hand.
[15] The statement from Justice Robertson in Imperial Sheet Metal Ltd. v. Landry, 2007 NBCA 51, notes “In the global world, the titans of finance and industry pay millions in exchange for their executives executing non-competition clauses. Why should courts be handing them out for free when it comes to employees of lesser stature?”
[16] Given the injunctive relief sought, the availability of damages if same is found at trial, and the evidence the plaintiff replaced Wang during his parental leave with an English speaking Sales Manager, I am not prepared to consider Wang as a fiduciary to assist the plaintiff in obtaining the injunctive relief sought. I accept the comment made in paragraph 75 of the Computer Enhancement Corp. v. J.C. Options, supra, decision where Justice Ricchetti is quoted from Planit Search Inc. v. Mann, 2013 ONSC 6847 that “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.” Further, “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.”
[17] As a result, I am unable to conclude the plaintiff will suffer irreparable harm if the injunctive relief is not granted. I am reinforced in this conclusion by the comment of Justice Mesbur in Barton-Reid Canada Ltd. v. Alfresh Beverages Canada Corp., 2002 CanLII 34862 (ON SC), [2002] O.J. No. 4116 (SCJ), at paragraph 18 where she addresses lost “sales and market share can be compensated in damages” and “If the nature of the damage can be calculated in money, then no matter how hard it may be to quantify the damages, the court should decline to grant an injunction.”
Issue – Greater Harm
[18] The plaintiff submits this is in its favour. It alleges it will continue to suffer significant losses that will result in layoffs and downsizing. In support of that argument, it points to Wang’s admission his 18 customers were all customers of the plaintiff. However, we are now approaching one year since Wang gave his notice to the plaintiff (ignoring the previous five plus months when he was off on parental leave and not performing his duties for the plaintiff) which, in my view, begins to approach the limit of a fair and enforceable non-competition clause.
[19] Further, while this argument has merit, it is not as strong as evidence there has actually been layoffs. In this regard, I note payroll expenses for 2015 for the plaintiff increased by over $8,000 on more than $500,000 of expense compared to 2014.
[20] By comparison, the defendant would be deprived of earning a living in a field which has been his primary occupation for the past five years. This matter does not appear to be an issue about whether the plaintiff has a right to damages but rather how much, particularly given the defendant’s conduct before his resignation (or according to the defendant’s counterclaim, his constructive dismissal).
[21] In addition, the defendant raises that the injunction the plaintiff seeks is with regard to all of its customers which it admitted is 400 to 500 accounts and is too broad. I agree. The plaintiff conceded it was willing to restrict the injunction to the defendant’s 18 customers, all of whom have been customers of the plaintiff. Overall, I conclude the balance of convenience is not in favour of the plaintiff.
Conclusion
[22] The plaintiff’s motion has been unsuccessful and is dismissed.
Costs
[23] The defendant has been successful and is entitled to costs. The plaintiff’s Costs Outline on a partial indemnity basis was $24,164.05 inclusive of fees, HST and disbursements. The defendant’s Costs Outline was in the amount of $38,397.65 inclusive of fees, HST and disbursements on a partial indemnity basis. While the importance of the motion to the defendant must be acknowledged, it was also important to the plaintiff. In my view, the claim by the defendant is excessive and I would reduce same to the amount sought by the plaintiff, that is, fix same in the amount of $24,164.05 inclusive of fees, HST and disbursements.
[24] Given the admission the defendant’s conduct before his resignation has resulted in damages owed by him to the plaintiff, I also award the costs to the defendant in any event of the cause so as to permit it to be set off from any amount owed by him to the plaintiff (as opposed to the usual order of payable forthwith).
Mr. Justice G. Dow
Released: May 25, 2016
CITATION: Canada Fine Parts and Supplies Inc. v. Wang, 2016 ONSC 2457
COURT FILE NO.: CV-15-00540864
DATE: 2016/05/25
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CANADA FINE PARTS AND SUPPLIES INC.
Plaintiff
– and –
PEI WANG, also known as MIKE WANG, and PEI WANG carrying on business as “FIVE DIMENSIONS”
Defendants
REASONS FOR JUDGMENT
Mr. Justice G. Dow
Released: May 25, 2016