COURT FILE NO.: CV-16-548541 DATE: 20160601 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

FLS TRANSPORTATION SERVICES INC. Plaintiff – and – CHARGER LOGISTICS INC., JEFF SPALDING, DAVID BRUCHATZKI, COIRE RUSSELL, HARBI NATT, BRITTANY MIEHM, RICHARD MCINTYRE and LUISA COSTA Defendants

Counsel: Hendrik Nieuwland and Todd Weisberg, for the Plaintiff Ray Thapar and Michael Simaan, for the Defendant Charger Logistics Inc. Ian N. Roher and Jennifer Pocock, for the Defendants Jeff Spalding, David Burchatzki, Coire Russell, Harbi Natt, Brittany Miehm, Richard McIntyre and Luisa Costa

Heard: April 5, 2016

M. D. FAIETA j.

REASONS FOR DECISION

INTRODUCTION

[1] FLS provides logistic and freight brokerage services. It has a number of offices across North America. It serves its clients’ shipping needs primarily by arranging for the cost-effective transportation of goods along particular routes (also called lanes) by suitable third party trucking carriers. Its contracts with clients are generally short-term. As a result, the business between third party logistics companies and their clients is easily transferrable. [1]

[2] The Defendant Jeff Spalding has worked in the trucking, logistics and transport industry for over 20 years. He had developed a good relationship with a significant number of clients, such as Unyson, Hub Group and Landstar, which he brought with him when he was recruited to join FLS in 2009. He understood from the terms of his employment contract that he could take his own book of business with him if he left FLS. Spalding opened a branch office for FLS in Milton, Ontario (“FLS Milton”) in 2012. It was one of the smallest branches in the FLS network of 17 branches across North America. It accounted for about 4% of FLS’ total revenue. At the time of Spalding’s departure, FLS Milton had eight employees, including three salespersons. FLS Milton generated annual revenue of about $300,000.00 to $400,000.00. [2] Business from Unyson and Landstar was 90% of FLS Milton’s business. [3]

[3] On January 29, 2016, the employees at FLS were told that FLS had finalized a partnership with a private equity firm. They were also told that FLS was not for sale. On February 26, 2016, Coghlan told Spalding that FLS had been purchased by a private equity firm. Spalding understood from his conversation with Coghlan that the new owners would likely close FLS Milton in the near future and transfer those operations to their larger office in Oakville. Spalding had no interest in moving to the Oakville office. At that point, Spalding decided to look for other employment.

[4] On February 29, 2016, Spalding resigned from FLS. The Defendants David Burchatzki, Coire Russell, Harbi Natt, and Brittany Miehm also resigned on February 29, 2016. The Defendants Richard McIntyre and Luisa Costa resigned on March 1, 2016. Prior to their resignation, the individual Defendants (the “Former Employees”) held the following positions at FLS Milton: Spalding was the Senior Branch Director; Burchatzki and Russell were Sales Executives; Natt was a Customer Service Representative; Miehm was a Logistic Support Representative; McIntyre and Costa were Logistics Coordinators. [4]

[5] Coincidentally, on March 1, 2016, FLS completed the sale of its assets to Abry Partners LLC. [5] FLS sent a letter to all of its employees announcing that, on that day, it was completing the sale of its assets to FLS Transportation Services Limited. The letter went on to state:

We are pleased to inform you that FLS Transportation Services Limited (“Buyer”) will acquire the assets of the business of FLS Transportation Services Inc. (“FLS”) and its affiliates.

The transaction is expected to close today … Please note that, in the event that the transaction does not close, this letter will be null and void and you will remain an employee of FLS.

Conditional upon the closing, and effective as of the Closing Date, we are pleased to offer you employment on the same terms and conditions immediately following the closing, including benefits coverage, to those which you enjoyed immediately prior to the closing. … [6]

[6] The Former Employees were hired by the Defendant, Charger Logistics Inc. (“Charger”) on or about March 1, 2016 to work at its office in Mississauga, Ontario.

[7] Unlike FLS, Charger is an asset based company that puts all of the business it receives on its own trucks. [7] Unlike a broker such as FLS, Charger focuses on specific lanes and types of freight which leads to efficiencies and lower rates. Asset based carriers are also able to offer services such as satellite tracking that brokers cannot offer. [8]

[8] Since the resignation of the Former Employees, FLS has seen about a 90 percent decline in the number of orders placed by the clients serviced out of FLS Milton. FLS has experienced a loss of business from Hub Group, Unyson Logistics and others. [9]

[9] FLS alleges that the Former Employees removed confidential information related to all aspects of its business and clients. FLS alleges that the Former Employees used that information to solicit business, on behalf of Charger, from FLS’ clients.

[10] FLS seeks an interim injunction pending the hearing of a motion for an interlocutory injunction on May 3, 2016 that restrains:

1. The Former Employees, other than Spalding, from working for any competitor of FLS, including Charger, for a period of six months;

2. Spalding from working for any competitor of FLS for a period of twelve months;

3. The Former Employees, other than Spalding, from directly or indirectly soliciting the business of any clients of FLS who may have purchased from, or requested a quote for service from, FLS in the six month period preceding the Former Employees’ resignations for a period of six months from the granting of said injunction;

4. Spalding from directly or indirectly soliciting the business of any clients of FLS who may have purchased from, or requested a quote for service from, FLS in the six month period preceding the Former Employees’ resignations for a period of twelve months from the granting of the said injunction;

5. Charger from employing the Former Employees, other than Spalding, or engaging their services in any manner or for any reason whatsoever, for a period of six months following the cessation of their employment with FLS;

6. Charger from employing Spalding or engaging his services in any manner or for any reason whatsoever, for a period of twelve months following the cessation of his employment with FLS;

7. The Former Employees, or anyone acting on their behalf or at their direction, from: a) Directly or indirectly soliciting, contacting, approaching or in any way seeking to obtain business from clients of FLS; b) Directly or indirectly inducing or encouraging FLS’ clients into breaching, cancelling, lapsing or reducing the volume of their business with FLS or to otherwise discontinue their relationship with FLS, in any fashion; c) Directly or indirectly soliciting or encouraging any employees of FLS to discontinue their relationship with FLS, in any fashion, for a period of 12 months for Spalding and six (6) months for the other Former Employees from the cessation of their employment with FLS.

[11] For the reasons described below, I dismissed this motion on April 7, 2016.

ANALYSIS

[12] The determination of a motion for an interlocutory injunction presents the following challenge:

On the one hand, if an immediate remedy in the form of an injunction is withheld, the plaintiff’s rights might be so impaired by the time of a final determination that it would be impossible to fashion a proper remedy. On the other hand, if an injunction is granted, the defendant might end up having been restrained from engaging in conduct that ultimately turns out to be entirely lawful. [10]

[13] In National Commercial Bank Jamaica Ltd. v. Olint Corpn Ltd., [2009] 1 W.L.R. 1405, at paras. 16-17, the Privy Council described how this challenge should be addressed:

It is often said that the purpose of an interlocutory injunction is to preserve the status quo, but it is of course impossible to stop the world pending trial. The court may order a defendant to do something or not to do something else, but such restrictions on the defendant's freedom of action will have consequences, for him and for others, which a court has to take into account. The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial. At the interlocutory stage, the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result. As the House of Lords pointed out in American Cyanamid Co v Ethicon Ltd, [1975] AC 396, that means that if damages will be an adequate remedy for the plaintiff, there are no grounds for interference with the defendant's freedom of action by the grant of an injunction. Likewise, if there is a serious issue to be tried and the plaintiff could be prejudiced by the acts or omissions of the defendant pending trial and the cross-undertaking in damages would provide the defendant with an adequate remedy if it turns out that his freedom of action should not have been restrained, then an injunction should ordinarily be granted.

In practice, however, it is often hard to tell whether either damages or the cross-undertaking will be an adequate remedy and the court has to engage in trying to predict whether granting or withholding an injunction is more or less likely to cause irremediable prejudice (and to what extent) if it turns out that the injunction should not have been granted or withheld, as the case may be. The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other.

[Emphasis added.]

[14] In RJR – MacDonald v. Canada (Attorney General), [1994] 1 S.C.R. 311, at pages 348-9, the Supreme Court of Canada described the three-part test for an interlocutory injunction as follows:

(1) Is there a serious issue to be tried?

(2) Will the moving party suffer irreparable harm if an injunction is refused?

(3) Does the balance of convenience favour granting an injunction?

[15] An additional consideration on a motion for an interim injunction is whether the moving party has established an "... urgency of such importance that there is no alternative way to proceed in order to counter the harm that might be or is actually occurring." [11]

[16] Given that an interim injunction is a discretionary equitable remedy, the moving party must come to Court with “clean hands.” It is on this basis that the requirement for the moving party to make full and frank disclosure rests. [12]

Issue #1: Has FLS Established A Strong Prima Facie Case To Be Tried On The Merits?

[17] This stage of the analysis requires a preliminary assessment of the strength of the plaintiff’s case. A prolonged examination of the merits is generally neither necessary nor desirable. A final determination of the issue(s) must be avoided. [13]

[18] In assessing whether there is a serious question to be tried, a court need only find that the claim is not frivolous or vexatious. [14] However, where an employer seeks to place restrictions on a person’s ability to engage in their chosen vocation and to earn a livelihood, then a strong prima facie case must be shown. [15] In such cases, the moving party must show that its claim is almost certain to succeed. In my view the strong prima facie standard applies regardless of whether the basis for the restriction on an employee is based on a contract or a common law cause of action such as breach of fiduciary duty or breach of confidence. [16]

[19] FLS submits that the Former Employees breached the restrictive covenants found in their employment contracts related to retaining and disclosing confidential information as well as soliciting employees and customers. FLS also submits that the Former Employees are liable at common law for breach of fiduciary duty and breach of confidence.

Is there a Strong Prima Facie Case that the Restrictive Covenants are Enforceable? If so, did the Former Employees Breach these Covenants?

[20] In J.G. Collins Insurance Agencies Ltd. v. Elsley Estate, [1978] 2 S.C.R. 916, at 923-4, the Supreme Court of Canada described the principles governing the assessment of whether a restrictive covenant in an employment contract is enforceable as follows:

A covenant in restraint of trade is enforceable only if it is reasonable between the parties and with reference to the public interest. As in many of the cases which come before the courts, competing demands must be weighed. There is an important public interest in discouraging restraints on trade, and maintaining free and open competition unencumbered by the fetters of restrictive covenants. On the other hand, the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power. In assessing the opposing interests the word one finds repeated throughout the cases is the word "reasonable." The test of reasonableness can be applied, however, only in the peculiar circumstances of the particular case. Circumstances are of infinite variety. Other cases may help in enunciating broad general principles but are otherwise of little assistance.

It is important, I think, to resist the inclination to lift a restrictive covenant out of an employment agreement and examine it in a disembodied manner, as if it were some strange scientific specimen under microscopic scrutiny. The validity, or otherwise, of a restrictive covenant can be determined only upon an overall assessment, of the clause, the agreement within which it is found, and all of the surrounding circumstances.

The distinction made in the cases between a restrictive covenant contained in an agreement for the sale of a business and one contained in a contract of employment is well-conceived and responsive to practical considerations. ...

A different situation, at least in theory, obtains in the negotiation of a contract of employment where an imbalance of bargaining power may lead to oppression and a denial of the right of the employee to exploit, following termination of employment, in the public interest and in his own interest, knowledge and skills obtained during employment. Again, a distinction is made. Although blanket restraints on freedom to compete are generally held unenforceable, the courts have recognized and afforded reasonable protection to trade secrets, confidential information, and trade connections of the employer.

[Emphasis added.]

[21] In H.L. Staebler Company Ltd. v. Allan et al., 2008 ONCA 576, 92 O.R. (3d) 107, at para. 36, the Ontario Court of Appeal stated:

Reasonableness is the mechanism by which a court decides whether a covenant is "overly broad" or is only that which is reasonably required for the employer's protection. But how is a court to determine whether any given restrictive covenant is "reasonable"? Elsley offers a framework for making such a determination. The starting point is "an overall assessment, of the clause, the agreement within which it is found, and all of the surrounding circumstances". Thereafter, three factors must be considered. First, did the employer have a proprietary interest entitled to protection? Second, are the temporal or spatial features of the covenant too broad? And, third, is the covenant unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer? [Emphasis added.]

[22] The employment contract between FLS and the Former Employees contains the following covenants:

Retention of Documents

I acknowledge, understand and agree that all memoranda, notes, records, charts, formulae, data, software, source code, object code, clients lists, price lists, marketing plans, financial information and other documents made, received held or used by me during the course of employment shall be the property of FLS and shall be delivered to the Company upon termination or cessation of employment for any reason. I shall not retain any copies of such documentation without the written consent of FLS. [17]

Disclosure of Confidential Information

Any information relating to our policies, processes, structures, operations, customers or other employees acquired by you in the course of, or as a result of, your employment with the Company is considered confidential. Such information shall be treated as confidential, and may not be disclosed by you to any other person, firm or company during your employment or after without prior written authorization. Confidential information or material includes but is not limited to financial information, plans, strategies, corporation information and any other information deemed “confidential”, unless such information is available to the general public or in the public domain. [18]

Non-Solicitation of Employees

It is a term of this offer that you agree that during your employment, and for a period of three (3) months following the termination of such employment for any reason whatsoever, you shall not either individually or in partnership or conjunction with any person or persons, firms, association, syndicate, company or corporation as principal, employee, contractor, shareholder or agent, directly or indirectly encourage any Company employee to leave employment with the Company. [19]

Non-Solicitation of Customers

I covenant and agree that during the term of my employment and for a period of six months following the date of termination of my employment, … I will not:

(a) Directly or indirectly solicit any Business from, or accept any Business from, any Restricted Customer as defined herein;

(b) Directly or indirectly assist … any person directly or indirectly to solicit Business from any Restricted Customer; or

(c) Have any direct or indirect interest or concern … in or with any person, firm or entity if any of the activities consists of soliciting Business from any Restricted Customer,

if such solicitation is, directly or indirectly, intended to result in a sale of any product or serve to such Restricted Customer that is directly or indirectly competitive or potentially competitive with any product or service then produced or offered by FLS. For purposes of this provision, “Restricted Customer” means any person, firm or entity with which I had contact in the course of my employment with FLS that was a customer of FLS during the one (1) year period immediately prior to the termination of my employment with [the] Company. [20]

[23] The reasonableness of these covenants is questionable.

[24] First, FLS, in earlier proceedings, has stated that for this type of business there is no proprietary interest in customers nor is there “confidential information” entitled to protection given that its client lists, rates and related business information are almost entirely publicly available.

[25] In Patriot Freight Services v. Menzies, 2014 QCCS 4150, the Plaintiff, Patriot Freight Services, unsuccessfully sought an interim interlocutory injunction against three former employees hired by FLS. Domenico Di Girolamo, the Chief Executive Officer of FLS, stated in an affidavit sworn June 15, 2013 that:

[FLS] is a transportation brokerage company …

It has 85 people working as sales representatives (“reps”) …

The reps are recruiting shippers all over North America in order to provide them with logistic services;

The rates offered to the shippers constantly vary depending upon many factors such as the offer, the demand, the rate of exchange, the competition on certain lanes of traffic and whether or not a return shipment is available;

Except on very rare cases, the shippers don’t provide exclusivity to any broker and go with the best rate available;

For these reasons, there is no confidential information such as rates or list of clients in this market where there are numerous players; …

[Emphasis added.]

[26] Another company sought an interlocutory injunction in respect of 11 employees who resigned en masse to join FLS in order to prevent FLS and the employees from breaching the covenants of confidentiality and non-solicitation. [21] In response to this motion, FLS relied upon the Affidavit of Michael Flinker sworn November 23, 2012. Mr. Flinker stated:

I am the President and authorized representative of the Respondent/Defendant Services de Transport FLS Inc. [“FLS”]…

FLS is in the truck transport brokerage business;

The activities of FLS consist of finding the resources for its clients for them to transport goods and merchandise by truck from one destination to another at the best available tariffs. Unlike normal transporters FLS does not have assets like trucks or trailers or the tractor trucks that haul them;

The nature of the Industry is that clients are not exclusive to any one transportation broker but each shipper may list several brokers that they may call for service on a regular basis and numerous other brokers like FLS on an occasional basis;

A great deal of business is done on the Internet where there exists several sites where Shippers may advertise that they need delivery from Point A to Point B and requiring quotes, and Brokers and Transporters may advertise that they are delivering from point A to point B and requesting quotes, and Brokers or Transporters may advertise that they are delivering from Point A to Point B and have room on their truck for delivery of additional merchandise and thus providing a direct link up;

In the Transport Industry, carriers can be found through a variety of public sources and customers can be found by consulting databases and performing internet searches.

Carriers can be found on various databases such as “LoadLink”, “DOT360” which matches carriers and loads, “Truckstop” and, as well searches on Google for carriers. These databases also permit a search by product.

There are also other resources available on the Internet for finding potential customers such as “Red Book Credit Services”, which provides credit history for produce companies listed in the “Red Book” and in, “Bluebook Online Services”; …

The business is a very fluid business and there is a lot of competition and clients, in any event, shop around for quotes from different companies to obtain the best rates and they do not use any one logistics company exclusively.

There is no particular confidential information in operating the business since rates fluctuate on a daily basis and the identities of clients are all very well known and are listed on several public web sites and business directories such that all this information is public.

The customers who the Plaintiffs allege in their Motion, do not have any exclusivity agreement with the Plaintiffs and are free to do business with whomever they choose;

[Emphasis added.]

[27] In my view, the evidence of FLS’ own executives in other proceedings undermines its position on this motion that the business information is confidential and proprietary. In any event, even if the covenants were found to be reasonable, as described below, the evidence does not support a finding that there is a strong prima facie case that these covenants have been breached by the Former Employees.

Retention of Documents

[28] FLS alleges that the Former Employees removed and retained highly confidential information related to all aspects of FLS’ business and clients upon their resignation. This confidential information includes client contact information, information regarding prospective clients, client contracts, client rate and price information, accessorial charges, preferred routes, fuel tables, client transportation management software information, carrier contacts, carrier performance data, standard operating procedures and operating, financial and marketing information.

[29] Coghlan states that:

... on February 29, 2016, I went to the Milton Branch … I determined that Spalding, Burchatzki, Russell, Natt and Miehm had collected and removed the contents of their desks, which contained highly confidential and proprietary information belonging to FLS. I took several photographs of the office and their empty desks on March 2, 2016, copies of which are attached to my Affidavit … . [Emphasis added.]

[30] The photos taken and provided by Coghlan of “empty desks” do not fairly reflect the condition of the Former Employees’ desks when they departed on February 29, 2016 and March 1, 2016. Although a photograph of the left side of Natt’s desk was included, a photo of the right side of her desk upon which Natt left copies of load confirmation and load tenders was not included. [22] Upon his resignation, McIntyre left insurance claims, in paper form, on his desk. Coghlan’s photographs do not show these forms on McIntyre’s desk; however he did provide a photograph of the drawers of McIntyre’s desk. [23] Further, Coghlan included a photograph of a desk that had not been used by anyone for some time. [24]

[31] Further, at the hearing of this motion, FLS admitted that it has no evidence that the Defendants Natt, Miehm and McIntyre removed confidential documents from FLS Milton.

[32] At the hearing of this motion FLS submitted that Burchatzki and Russell took “hard copy client files” from the FLS Milton office and that Spalding took new customer lists, client contacts, carrier lists and employee contracts. However, this is denied. Spalding states:

I did not have and I am also not aware of the existence of the following documents and therefore could not have taken, and did not take any hard copies of any of the alleged documents with me:

(a) Any FLS “Client Information Files”. In this regard, I note that Coghlan has not produced any example of these purported Files in either of his affidavits, either in full or redacted form;

(b) A list of prospective clients or any information pertaining to them;

(c) FLS’ standard operating procedures applicable to clients serviced by the Milton branch.

I have been told by Burchatzki and Russell that they also are wholly unaware of the existence of the foregoing alleged documents, and therefore, could have not taken and did not take any such files with them. [25]

[33] Charger denies that it has copies of any contracts between FLS and its clients. Andy Khera, a Director and Officer of Charger, states:

I have conducted a search of Charger’s records and have made inquiries of others and confirm that there are no contracts between FLS Inc. and Clients serviced at the Milton Branch. I am advised by Spalding, and believe to be true, that these contracts are maintained in electronic form on an archiving system at FLS Inc. called “Mime Cast” and not in paper form. [26]

[34] Coghlan states that Spalding took confidential information from FLS Milton upon his resignation:

Following Spalding’s departure, FLS reviewed the contents of Spalding’s FLS email address. Upon review FLS discovered that prior to his departure, Spalding was inappropriately sending FLS’ confidential information, including price lists, clients lists, client requests for proposal and client contact information to … [Spalding’s personal email address]. [27]

[35] Spalding explained that these transfers were not in anticipation of his resignation but had been made as early as April 2015 so that he could work at home:

While I was working at FLS, I worked from home or after office hours on a regular basis. While FLS had a remote access system, it was very unreliable and I had experienced many difficulties with it over the years. As a result, I was obliged to forward my work from my FLS account to my personal account in order to work offsite and after hours. I had also engaged in a similar practice while working at Wellington.

FLS has tried to suggest that this practice was engaged in for improper purposes and motivated by my intended departure, which is simply not true. … Some of these emails were forwarded in the manner described above as early as April 24, 2015.

[36] Spalding further states that following his resignation on February 29, 2016, he did not remove any confidential information from FLS Milton:

I only took my own belongings, awards that I had received, photographs and other personal items from my office. Since I did not have hard copies of any client files, other confidential information, bids, loads, or any work in progress, I did not remove any such information from the Milton branch.

I did not attempt to wipe or purge anything from my office desktop computer. FLS had and continues to have access to all of my client information, contacts, as well as, any other work that was on my desktop.

All of the bids that I had worked on while employed with FLS can be found on a third party website www.LeanLogistics.com to which FLS has access.

FLS has every opportunity to contact any of my clients through the CRM software it uses in order to obtain business with them moving forward.

I did not attempt to solicit business or transfer any of my clients to Charger before or after I had resigned from FLS, although I did advise of my new location. I had loads for FLS booked on the day of my resignation.

In response … all of my emails had been archived on a monthly basis by FLS on a cloud server called Minecast … . FLS would therefore still have access to all of the emails that I had deleted. There were personal emails there and I simply did not have time to remove them individually. [28]

[37] In my view, FLS has not shown a “strong prima facie” case that the Former Employees retained confidential information contrary to the covenant.

Disclosure of Confidential Information

[38] FLS further alleges that this confidential information was used for the benefit of Charger as almost all of FLS’ clients serviced by the Former Employees ceased doing business with FLS and transferred their business to Charger.

[39] Based on the evidence provided on this motion, it is my view that FLS has not established a strong prima facie case that “confidential information” was disclosed by the Former Employees.

Non-Solicitation of Employees

[40] FLS submits that Spalding solicited employees to leave FLS. The non-solicitation covenant states that an employee shall not “encourage” an FLS employee to leave employment with FLS.

[41] During the late afternoon of February 29, 2016, Spalding announced to FLS Milton staff that he would be leaving FLS. Spalding provided his colleagues with his contact information. [29]

[42] Spalding states that he has done nothing to solicit any existing employee to leave FLS. [30]

[43] In my view, FLS has not shown a “strong prima facie” case that Spalding encouraged the Former Employees to leave FLS in order to work for Charger. Their affidavits explain their own personal reasons for leaving their employment with FLS once they learned that Spalding was leaving. [31]

Non-Solicitation of Customers

[44] The Former Employees, other than Spalding, were subject to the non-solicitation covenant.

[45] Spalding’s employment contract does not contain a non-solicitation covenant. Thus, he was not prohibited from soliciting any customers particularly those that he had brought to FLS, such as Unyson and Hub Group. Nevertheless, FLS submits that Spalding solicited clients away from FLS because he advised clients that he had joined Charger and because he visited Hub Group’s main office on March 4, 2016. In my view this evidence does establish a strong prima facie case for breach of this covenant.

[46] Coghlan states that Jamie Shelson, FLS’ Director of New Business Development, told him that he had been told on March 2, 2016 by Candice Mann and Jeff Kilbourn of Owl Distribution Inc. that they had been solicited by Russell to transfer their business from FLS to Charger and that they had decided to transfer most of their business to Charger because they had a strong relationship with Russell. This evidence is double-hearsay and is inadmissible. [32]

[47] Coghlan states that Mathew Hernando of the Hub Group told him on March 2, 2016 that Burchatzki had contacted the Hub Group and invited them to move their business from FLS to Charger. Hernando told Coghlan that they would not do so. This hearsay evidence raises a serious issue of whether Burchatzki breached the non-solicitation covenant, however it is not strong prima facie evidence of such breach.

Is there a Strong Prima Facie Case that the Former Employees are Liable for Breach of Confidence?

[48] In order to establish a claim for breach of confidence, the following three elements must be proven:

• The information that was conveyed was confidential;
• The information was communicated in confidence;
• The information was misused by the party to whom it was communicated. [33]

[49] In my view, FLS has not established a strong prima facie claim for breach of confidence given that the information does not possess the quality of confidence for reasons described earlier.

Is there a Strong Prima Facie Case that the Former Employees Were Fiduciaries of FLS? If so, did they breach any fiduciary obligation owed to FLS?

[50] FLS submits that all of the Former Employees are fiduciaries of FLS and thus owe a common law obligation to not retain confidential information.

[51] An employee is not necessarily a fiduciary of his or her employer. Whether a fiduciary relationship exists depends on whether their relationship has the following characteristics:

• The fiduciary has scope for the exercise of some discretion or power;
• The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; and
• The beneficiary is peculiarly vulnerable to the fiduciary holding the discretion or power. [34]

[52] In determining whether an individual is a fiduciary, the court must look at the nature of the relationship between the parties, the job function and the responsibilities being performed. These factors are more determinate of the issue than the title held by the employee. The varying degrees of trust, confidence and reliance given to the employee and the corresponding vulnerability or dependency of the employer to competition when the person leaves are the most pertinent factors in determining whether a fiduciary duty exists.

[53] Despite having initially advanced this position, at the hearing of this motion, FLS did not seriously assert that any of the Former Employees other than Spalding owed a fiduciary duty to FLS.

[54] Coghlan stated that Spalding was a key employee in the Milton Branch and provided him with a wide degree of latitude in determining how to grow the business. He states that he and FLS put a great deal of trust and confidence in Spalding.

[55] However, Coghlan’s private statements suggest that he did not have trust or confidence in Spalding:

As you know, Jeff is a great salesman, but there has always been a reason why I have never given him more than just his little branch that he has, because he’s not capable as a businessman. [35]

[56] Spalding states that he had limited discretion regarding the operation of FLS Milton. He could not schedule his own vacation dates. He was required to obtain approval from Coghlan. He was unable to approve expenses for the operation of FLS Milton on simple items such as employee cell phones. He also was required to obtain approval from Coghlan or Di Girolamo to be repaid for his expenses, such as the cost of travel to further existing client relationships. [36]

[57] FLS has not established a strong prima facie case that Spalding had scope for the exercise of “discretion or power.”

Issue #2: Will Irreparable Harm Be Suffered If The Injunction Is Not Granted?

[58] In RJR MacDonald Inc. v. Canada (Attorney General) the Supreme Court of Canada explained “irreparable harm” as follows:

“Irreparable” refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court’s decision… where one party will suffer permanent market loss or irrevocable damages to its business reputation …or where a permanent loss of natural resources will be the result if a challenged activity is not enjoined. [37] [Emphasis added.]

[59] I am not satisfied that FLS has satisfied irreparable harm for three reasons.

[60] First, I am not satisfied that the losses are incalculable. In my view the loss of income suffered by FLS as a result of the departure of the Former Employees can be quantified on the basis of the income that would have been earned at FLS Milton based on its historical performance or alternatively by the income earned by Charger from those clients of FLS that were allegedly improperly solicited.

[61] Second, Coghlan, in a private conversation, minimized the impact of the departure of the Former Employees. He stated:

Honestly, Cindy, I don’t give a shit about the 200,000 GP. To me, it’s a pimple on my ass. It doesn’t mean anything to me in terms of money. It doesn’t hurt anything in my network. It was completely contained into a certain area of Milton.

[62] Third, FLS sold all of its assets on March 1, 2016 and, as a result, there is no evidence of any damages or harm suffered by FLS as a result of the departure of the Former Employees. If the employment contracts of the Former Employees were not assets that were transferred to the buyer, FLS Transportation Services Limited (“New FLS”), then the question remains: what loss has FLS suffered given that it no longer owns the business? If the employment contracts of the Former Employees were assets that were transferred to New FLS, then New FLS rather than FLS should have commenced this action.

Issue #3: Does The Balance Of Convenience Favour Granting An Injunction?

[63] The assessment of the balance of convenience requires the “…determination of which of the two parties will suffer the greater harm from the granting or refusal of an interlocutory decision, pending a decision on the merits.” [38]

[64] If the interim injunction is granted, the Former Employees would, amongst other things, be unable to work for a competitor of FLS for 6-12 months. The irreparable harm to FLS as a result of not granting an interim injunction, if any, is greatly outweighed by the financial impact of an interim injunction on each of the Former Employees.

[65] Accordingly, I dismiss the motion by FLS for an interim injunction.

Issue #4: Does FLS Seek This Interim Injunction With “Clean Hands”?

[66] The Defendants submit that the motion for interim injunction should be dismissed on the basis that FLS does not come to court with “clean hands”. The maxim that “one who comes to equity must come with clean hands” has been explained to mean that “no Court of Equity will aid a man to derive advantage from his own wrong.” [39] In City of Toronto v. Polai, [1970] 1 O.R. 483, at para. 46, the Ontario Court of Appeal stated that “[t]he misconduct charged against the plaintiff as a ground for invoking the maxim against him must relate directly to the very transaction concerning which the complaint is made, and not merely to the general morals or conduct of the person seeking relief.”

[67] In Royal Bank of Canada v. Boussoulas, 2012 ONSC 2070, [2012] O.J. No. 2335, at paras. 29 and 52-55, the Ontario Divisional Court held that a person could be denied an injunction if it had overstated its case and had made unsupported allegations even if it would otherwise had been granted injunctive relief. The Divisional Court agreed with the following statement:

Misstatements and overstatements of evidence such as those mentioned above impair and impede the court in the performance of its function, and are to be strongly discouraged. It is no answer for a party to say: “this motion was brought on notice – the defendant had every opportunity to respond with his side of the story.” Whether a motion is or is not brought on notice does not affect a party’s duty to be fair, accurate and candid with the court, in its notice of motion, affidavits and factum. At the same time as advocating his or her client’s cause, counsel has a duty to assist the court in arriving at a just and proper result. [Emphasis added.]

[68] The Defendants allege that FLS does not seek this interim injunction with “clean hands” for three reasons described below.

False Statement/Attempted De Facto Injunction?

[69] Andy Khera is a Director and Officer of Charger. His evidence [40] is as follows:

1. Hub Group and Unyson Logistics, which is a division of Hub Group, are Charger’s biggest clients. They account for over 30% of its business. They have been doing business with Charger since about 2009 or 2010.

2. FLS’ motion for an interim injunction was originally returnable on March 18, 2016. The parties entered a confidential agreement whose terms were not to be disclosed to any non-party unless required by law. Based on that agreement, this Court adjourned the hearing of this motion to April 5, 2016 so that the parties could be better prepared to fully argue the motion. The Order, issued by Justice Lederer, requires that “… this Order and its contents shall remain confidential to the parties and shall not be disclosed to non-parties unless otherwise required by law.”

3. On March 22, 2016, Ryan Heimberger of Unyson Logistics advised Andy Khera that Duane Coghlan, Vice President and General Manager of FLS, had advised Unyson that an injunction had been granted against Charger and Spalding, and that as a result, neither would be able to provide services for Hub Group in the near future and that Hub Group should consider finding another service provider. In fact, no such injunction was granted by this Court.

4. Khera told Heimberger that an injunction had not been granted; however, Heimberger indicated that the Hub Group was nervous about Coghlan’s statements and was meeting to suspend any work to Charger.

5. As a result of the concern expressed by the Hub Group, a letter was sent by the Defendants to FLS asking that FLS’ counsel advise Coghlan to cease and desist repeating the false statement that injunctive relief had been granted.

6. On March 23, 2016, counsel for FLS provided the following response: … I do note that even if the alleged words being attributed to Mr. Coughlan are true, this does not amount to a breach of the terms agreed to on Friday, March 18, 2016. As you say in your letter, an injunction did not form part of the terms. If Mr. Coghlan has advised third parties that an injunction was granted (which as mentioned has yet to be substantiated), then Mr. Coghlan has not disclosed any terms of the agreement.

7. The false statement made by Coghlan to Heimberger was, in effect, an attempt to obtain a de facto injunction even though FLS’ motion for an interim injunction had not been determined by the Court.

8. On March 28, 2016, Charger brought a motion to enjoin FLS and Coghlan from making any false or misleading statements to any non-party regarding Charger or its staff. This motion was to be heard on May 3, 2016 however it has now been withdrawn by Charger.

[70] While Coghlan’s affidavit sworn March 30, 2016 responds to other matters, it does not respond to the above evidence. There is no evidence that contradicts or otherwise challenges the above evidence.

[71] Accordingly, it is clear that Coghlan misrepresented the effect of this Court’s Order to Charger’s largest client in the hope that it would not send further business to Charger. If Coghlan’s misrepresentation had the desired effect, it would have made this motion for an interim injunction in respect of Hub/Unyson redundant.

Overstated or Misstated Evidence?

[72] The Defendants submit that FLS tendered the following “untrue, misleading and false” evidence [41] to support this request for an interlocutory injunction:

(1) Messages from a phone left at FLS by the Defendant Jeff Spalding. FLS relied on the affidavit evidence of Matthew Musters, a Forensic Analyst, who stated that a cell phone linked to the name “Jeff” contained 16 messages dated on or after February 29, 2016. These messages included a message dated March 1, 2016 from “Jeff’s” cell phone which stated “working already”. [42] FLS used these messages to suggest that Jeff had made his departure plans known to FLS’ clients prior to February 29, 2016. [43] However, Spalding's evidence is that he left his cell phone at the Milton branch when he left during the evening of February 29, 2016. He states that any text messages on that cell phone after that time were not sent or received by him. [44] The Defendants submit that Coghlan sent the above text message on Jeff’s cell phone pretending to be Jeff.

(2) The Former Employees did not take any confidential client information, other confidential information or hard copy files;

(3) The pictures of the Milton office were taken after a large number of hard copy files had already been removed.

Failure to Disclose Material Evidence?

[73] FLS failed to disclose material evidence regarding its involvement in other recent legal proceedings, referenced at paragraphs 25 and 26 above, for undertaking hiring practices that it now seeks to enjoin. [45]

[74] Had I not dismissed this motion on its merits, I would have dismissed it on the basis that the Plaintiff had failed to seek this interim injunction with “clean hands”.

CONCLUSIONS

[75] I dismiss the Plaintiff’s motion for an interim injunction.

[76] The Defendants shall submit their costs submissions within one week of today’s date. FLS shall submit its costs submissions within two weeks of today’s date. These submissions shall be no longer than 3 pages, exclusive of an outline of costs.

Mr. Justice M. D. Faieta

Released: June 1, 2016