Computer Enhancement v. J.C. Options, et al, 2016 ONSC 452

COURT FILE NO.: CV-09-093822-00

DATE: 20160122

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Computer Enhancement Corporation, Plaintiff

and

J.C. Options, Jeffrey Reia, Crystal Delight Reia, Jason Reia

and J.C. Options Inc., Defendants

BEFORE: The Honourable Mr. Justice R.E. Charney

COUNSEL: Antonio Conte, for the Plaintiff

Robert W. Dowhan, for the Defendants

HEARD: November 17-23, 2015

Reasons for Judgment

Introduction

[1] This claim is brought by the plaintiff corporation against two of its former employees for damages for breach of contract and breach of fiduciary duty in connection with the sale of computer memory products. The plaintiff alleges that the defendants breached their common law and/or contractual duties by soliciting its customers and using confidential information to compete against it.

Facts

[2] The plaintiff, Computer Enhancement Corporation (“CEC”) is in the business of selling memory products for computers to its customers. CEC is a “reseller”. It does not manufacture computer parts, but acts as a middleman, finding the parts that its customers need and bidding on contracts. It maintains some inventory, although it often acts as a “broker”. Its customers may be resellers or end users.

[3] CEC is owned by Russell Roberts, who oversees all operations. Russell Roberts is not directly involved in dealing with customers. Russell Robert’s nephew, Keith Roberts, is the Sales Manager, and second in command at CEC.

[4] The defendant Jason Reia (“Jason”) began working at CEC in the summer of 1995, and was one of its top sales representatives. By 2008 he was earning $896,000 per year as a commissioned sales representative at CEC. Throughout his employment Jason remained a commissioned salesperson. He did not attend management meetings, and did not hire, fire, or supervise other employees. Jason had autonomy in putting together his own deals, although some terms, such as credit limits, were approved by Russell Roberts.

[5] The other defendant is Jason’s younger brother, Jeffrey Reia (“Jeffrey”), who began working as an “inside salesman” to assist Jason and two other CEC sales representatives in April 2000. The third defendant, Crystal Delight Reia (“Crystal”), is Jeffrey’s spouse.

[6] When Jason was hired by CEC in June of 1995 he was not asked to sign any contract of employment. On January 3, 1996, Jason was asked by Russell Roberts, to sign a non-competition/non-solicitation agreement with CEC. The agreement was signed on January 3, 1996, and the relevant terms provide:

2. The Employee acknowledges that:

(a) It is essential to the success of the Employer that the business and affairs of the Employer be kept in the strictest of confidence;

(b) The Employee acknowledges that during the term of his/her employment the Employee will acquire substantial knowledge, experience, expertise, and that information about certain matters and things which are confidential to the Employer and which information is the exclusive property of the Employer, including, without limiting the generality of the foregoing the following;

(i) product, design and manufacturing information;

(ii) lists of present and perspective clients and customers and related information;

(iii) pricing and sales, policies, techniques and concepts;

(iv) lists of suppliers; and

(v) trade secrets, including without limiting the generality of the foregoing, information relating to both hardware and software products.

3. The Employee acknowledges the information as referred to above is not to be used to the detriment of the Employer. Accordingly, the Employee undertakes to treat confidentially all information and agrees not to disclose same to any third party either during the term of his employment, except as may be necessary in the proper discharge of his employment under this Agreement, or after the date of termination of the Employee’s employment however caused, except with the written permission of the senior officer of the Employer.

4. For a period of SIX (6) months from the effective date of termination of the Employee’s employment hereunder, the Employee agrees not to;

(a) be directly or indirectly engaged in any company or firm which is a competitor to the Employer in any province in Canada where the Employer is carrying on business;

(b) intentionally act in any manner that is detrimental to the relations between the Employer and its dealers, customers, clients, employees or others; and

(c) solicit any of the customers/clients of the Employer, including but not limited to clients and customers which the Employer has an ongoing relationship, although no business may have yet been realized.

[7] Jeffrey signed an identical agreement when he was hired on April 28, 2000.

[8] In 2005 Jeffrey and Crystal registered an unincorporated business named “JC Options”. The business was registered in Crystal’s name for tax purposes, but was operated exclusively by Jeffrey. While still employed as a salesperson at CEC, Jeffrey, through JC Options, began to bid against CEC for contracts with CEC’s existing customers on whose accounts he worked with Jason or the other sales representatives. Jeffrey used his inside knowledge of CEC’s bids to underbid CEC and was awarded half a dozen contracts between 2005 and 2009.

[9] JC Options flew under the radar until 2009, when CEC lost a sale to one of its major customers, and, upon making enquiries, discovered that the winning bid was made by a company called JC Options. Further investigation revealed that JC Options was registered under Jeffrey and Crystal. Jeffrey was fired by CEC on February 15, 2009. From that date forward he continued to compete with CEC through JC Options.

[10] Jason returned from a vacation on or around February 16, 2009 and was informed that Jeffrey had been dismissed. Jason continued at CEC after his brother was fired, but decided soon after to leave CEC and go into business with his brother. On March 19, 2009 Jason and Jeffrey met with a lawyer and, on March 20, 2009 JC Options was incorporated with Jason and Jeffrey as directors. Jason’s intention at this point was to leave CEC and go into business with his brother, competing directly against CEC.

[11] Unaware of Jason’s intended departure, CEC issued a Statement of Claim against JC Options, Jeffrey and Crystal on March 25, 2009, seeking damages and an injunction against the defendants.

[12] On March 27, 2009 Jason quit CEC without notice, and joined his brother at JC Options. That same day, Jason sent an email message to his former customers at CEC to advise them that he was ending his employment at CEC.

[13] Jason complains that he was “forced out” of CEC because he was treated like a pariah by other sales staff after Jeffrey was fired. This allegation was not supported by any corroborating evidence, and appears to be an ex post facto rationalization. There is no evidence that Russell Roberts or any of the managers of CEC blamed Jason for Jeffrey’s disloyalty, or did anything to force Jason out. While Jason testified that some of the workers in the warehouse were asking him whether he planned on staying after Jeffrey was fired, none of his evidence came close to demonstrating that anyone was trying to force him out. Nor did Jason make any contemporaneous complaints when he left CEC on March 27 to suggest that he had been mistreated over the previous few weeks. I find that Jason’s reason for leaving CEC was his belief that he could go into the same business and successfully compete against CEC, combined with a sense of loyalty or solidarity with his brother. There is nothing in CEC’s conduct that would qualify as constructive dismissal.

[14] On April 9, 2009, the defendants in that action (JC Options, Jeffrey and Crystal) consented to a court order enjoining the defendants “and any agent acting on behalf of them… from directly or indirectly soliciting orders for computer memory or any type of server or network upgrade products from any person with whom Jeffrey Reia or Jason Reia conducted business on behalf of the Plaintiff at any time since January 1, 2005”, and requiring the defendants to keep records of all sales of computer memory and server or network upgrade products to any CEC customer. While Jason was not a named defendant in the action, there is no dispute that the April 9 Order applies to him. He acknowledges that he is bound by the order and claims to have complied with it.

[15] On July 9, 2013, the Statement of Claim was amended to add Jason and JC Options Inc. as defendants.

[16] CEC alleges that both Jason and Jeffrey violated the non-competition/non-solicitation agreement both before and after they left their jobs at CEC. CEC also alleges that Jeffrey and JC Options violated the terms of the April 9, 2009 consent Order.

[17] Jeffrey acknowledges that his competition with CEC while he was a CEC employee was inappropriate, and the dispute with regard to those sales is one of how to calculate damages. Jason denies that he competed with CEC or solicited any of its customers on behalf of JC Options while he was still employed at CEC.

[18] There is no dispute that Jeffrey and JC Options competed with CEC both before and after Jeffrey was terminated on February 15, 2009. Jeffrey’s position is that he did not “solicit” his (or CEC’s) former customers after February 15, rather the customers called him asking for bids, and that he only submitted bids in response to their calls.

[19] Jason initially claimed that after he quit CEC he took a few months off to decide his future and denied any involvement at JC Options. On cross-examination, however, he conceded (as he had on discovery) that when he first left CEC he did call or email his former CEC customers and asked them to do business with JC Options, but he claims to have stopped such solicitations following the April 9, 2009 Court Order. Jason also conceded that Jeffrey was calling CEC customers between February 15 (when Jeffrey was fired) and March 20, 2009 (when JC Options was incorporated).

[20] Following April 9, 2009, the brothers continued to do business with CEC customers. They state that the CEC customers called JC Options, and JC Options only submitted bids in response to these calls. Indeed, over ninety-five percent of JC Options $3 million worth of business during the first six months after Jason left CEC was with former CEC customers.

[21] While the Reia brothers learned the computer parts sales business during their time at CEC, CEC did not manufacture any of these parts, and did not have any confidential patents, designs, trade secrets or processes. The brothers knew who the CEC customers were, and Jason built business relationships with those customers on behalf of CEC. Jason was the top sales representative at CEC (there were seven sales staff when he left), and was responsible for a large portion of CEC profits. Jason could fairly be described as the “face of CEC” to its customers; he was the only individual at CEC that most of his customers dealt with.

[22] The customers were not, however, exclusive to CEC or an industry secret. Everyone in the industry knew who were the players and potential customers. The names of potential customers are available in the public domain on various websites which list the “top 100” dealers of the major computer and IT manufacturers such as IBM, Hewlett Packard and CISCO. Many sales leads were the result of “cold calls” to these dealers to find out their current requirements. There were many competitors in the marketplace, and CEC bid on each contract in competition with other computer parts resellers. The needs and requirements of each customer would change with each contract, and each successive bid had to succeed on its own merits. Customers generally went with the lowest bid,[^1] and competition increased from year to year.

[23] While Jeffrey used his inside knowledge of CEC’s bids to underbid CEC while he worked at CEC, this inside knowledge was of little use after both brothers left CEC, since they would have no knowledge of CEC bids prepared after March 27, 2009 (when Jason resigned). The product, cost and mark-up would change with every bid.

[24] The most problematic period is the time between February 15, 2009 (when Jeffrey was fired) and March 27, 2009 (when Jason quit). Jason was still employed at CEC during this period, and had access to CEC bidding information. Jeffrey was successfully competing against CEC during this period. JC Options has produced invoices from some of Jason’s largest CEC customers dated as early as February 20, 2009. For example, there are invoices from JC Options to Metafore – Jason’s largest account – dated February 20 and March 6, 2009. There are invoices from JC Options to Mainland Information Systems, another one of Jason’s major customers, dated February 26, 2009. The plaintiff asks that I infer that the brothers were already working together when JC Options won these contracts. Jason claims that he did not know that Jeffrey was in direct competition with him just one or two weeks before the brothers went into business together.

[25] Given the brothers’ admitted intention to go into business together, I do not believe that they had no discussions regarding their proposed enterprise prior to the March 19, 2009 meeting with their lawyer. I can infer, and I so find, that they formed an intention to work together on or soon after February 16, and that they did work in concert during that entire period. This resulted in JC Options’ successful bids between February 16, 2009 and April 9, 2009 (the date of the Court Order). As a result, I find that both brothers are responsible for the activities of JC Options from February 16, 2009 on.

[26] This finding is of central significance to my subsequent analysis, because each brother had slightly different legal duties with respect to CEC at the relevant time. Since they worked together, neither can avoid liability by pointing to the other brother.

[27] There is some dispute whether Jason took CEC invoices with him when he left CEC and used those invoices as a source for JC Options to contact former CEC customers. The evidence in this regard came from a former JC Options employee, Mike Cozzarin, whose evidence was confused and contradictory. At the end of the day, Cozzarin had very little recollection of what or when anything happened during the months of February to April 2009, and I do not give any weight to any of his testimony. The issue of invoices and customer lists strikes me as a red herring in any event – Jason and Jeffrey knew who the CEC customers were by virtue of having worked at CEC, and they did not need any invoices or customer lists in order to contact these customers. Whether it was the brothers who contacted the customers, or the customers who contacted the brothers to ask for bids, Jason and Jeffrey knew full well that these were the customers with whom CEC had an ongoing business relationship.

[28] It is clear that the owner of CEC, Russell Roberts, feels personally betrayed by the Reia brothers. They were trusted and well compensated employees who learned the business under his tutelage. Jeffrey secretly competed against CEC while still employed there, and Jason quit the month after Jeffrey was fired, but not before he and Jeffrey incorporated a business to compete with CEC. Jason and Jeffrey solicited CEC clients at least until April 9, 2009, and, depending on how we define “solicitation”, perhaps afterwards as well.

[29] On the other hand, in the absence of some contractual restriction or limitation, or a fiduciary duty at common law, a former employee is free to carry out his trade, even if that means competing with his former employer and doing business with his former employer’s customers. And a former employee may take general knowledge and skills acquired in the course of his former employ, and use them to compete against the former employer.

Issues

[30] This case raises the following six issues:

(a) Was the January 3, 1996 non-competition/non-solicitation agreement signed by Jason Reia a binding agreement?

(b) Were the terms of the non-competition/non-solicitation agreement enforceable as against Jeffrey Reia?

(c) Was Jason Reia a fiduciary of CEC who therefore had a duty not to compete with CEC for a reasonable period after he left CEC?

(d) If either Jason or Jeffrey had a duty to not compete against CEC or solicit its customers (whether by contract or common law), did either Jason or Jeffrey Reia violate that duty?

(e) Did either Jason or Jeffrey Reia violate the terms of the April 9, 2009 Court Order?

(f) If either Jason or Jeffrey Reia violated the terms of the agreement or the order, what is the quantification of damages?

[31] In considering these issues it is necessary to distinguish among four separate time periods, since the answer to each question depends upon the time in question.

[32] The first period is up to February 15, 2009, when Jeffrey was terminated. There is no dispute that Jeffrey owed a fiduciary duty not to compete with CEC until that date.

[33] The second period is from February 15, 2009 to March 27, 2009, when Jason resigned. There is no dispute that Jason owed a fiduciary duty not to compete with CEC during this period of time. There is a question whether Jeffrey owed any contractual duty to CEC during that period. Given that I have found that the brothers were working together during that period, the answer to this latter question is not strictly necessary, but I will consider it.

[34] The third period is from March 27, 2009 to the issuance of the Court Order on April 9, 2009. Neither brother was a CEC employee during this period. Did either or both brothers have any contractual or fiduciary duty to CEC during this period?

[35] The fourth period is the period after the issuance of the Court Order on April 9, 2009. Both brothers were bound by this Order.

Was the January 3, 1996 non-competition/non-solicitation agreement signed by Jason Reia a binding agreement?

[36] This issue is relevant only to the brief period of time between March 27, 2009 (when Jason’s duties as an employee ended) and April 9, 2009 (when Jason’s duties under the court order began).

[37] As indicated above, Jason signed his contract of employment on January 3, 1996, approximately six months after he began to work for CEC. Jason argues that the contract is void because he received no consideration when it was executed. Amendments to employment agreements require fresh consideration beyond the continuation of employment. Jason argues that no such consideration was provided when he signed the agreement on January 3, 1996.

[38] The law in this regard is summarised in the Ontario Court of Appeal decision in Hobbs v. TDI Canada Ltd., 2004 CanLII 44783 (ON CA), 246 DLR (4th) 43; 192 OAC 141; 2004 CarswellOnt 4989 (Ont. C.A.), which held (at paras. 32, 38):

[T]he law does not permit employers to present employees with changed terms of employment, threaten to fire them if they do not agree to them, and then rely on the continued employment relationship as the consideration for the new terms.

In Techform Products, Rosenberg J.A. similarly recognized that new consideration is required in order to modify an existing employment contract. He stated at para. 24:

It is also consistent with the principle fundamental to consideration in the context of an employment contract amendment – that in return for the new promise received by the employer something must pass to the employee, beyond that to which the employee is entitled under the original contract. Continued employment represents nothing more of value flowing to the employee than under the original contract.

As discussed further below, Rosenberg J.A. concluded on the facts in Techform Products that there was consideration beyond mere continued employment, and therefore held that the defendant employee was bound by the modified terms of the agreement.

The facts in Maguire and Techform Products include an important additional circumstance that is not found in the present case. In both those cases, the courts found that the employer had made the promise to the employee to forbear from exercising its right to terminate the employee for a reasonable period, thus enhancing the employee’s security of employment.

[39] In the case before me there is no evidence of consideration when Jason signed the non-competition /non-solicitation clause six months after he began his employment. There is evidence that Jason felt compelled to sign the agreement because he thought that he could lose his job if he did not sign (although no such threat was made by Russell Roberts). But there must be consideration “beyond mere continued employment”. There is no evidence that the signing of the non-competition/non-solicitation clause was accompanied by an increase in commission or salary or responsibility, or that the employer would forbear from exercising any right in exchange for the signature.

[40] In Hobbs, supra, the Court of Appeal states (at para. 42):

The requirement of consideration to support an amended agreement is especially important in the employment context where, generally, there is inequality of bargaining power between employees and employers. Some employees may enjoy a measure of bargaining power when negotiating the terms of prospective employment, but once they have been hired and are dependent on the remuneration of the new job, they become more vulnerable. The law recognizes this vulnerability, and the courts should be careful to apply Maguire and Techform Products only when, on the facts of the case, the employee gains increased security of employment, or other consideration, for agreeing to the new terms of employment.

[41] In the present case there is no evidence that Jason gained increased security of employment or any other consideration for agreeing to the non-competition/non-solicitation clause six months into his employment. This was a classic case of inequality of bargaining power, with the employee assuming that he had to sign anything that was placed before him if he wanted to keep his job. (See also: Alishah v. J.D. Collins Fire Protection Co., [2006] O.J. No. 4634, at paras. 49-50)

[42] CEC relies on paragraph 2 of the January 3, 1996 agreement, which indicates that consideration was paid to Jason in the amount of ten dollars. The paragraph states:

Now therefore, in consideration of the above, and in further consideration of the mutual promises and covenants set forth, and in consideration of the sum of ten dollars ($10.00), paid by each party to the other, the receipt and sufficiently (sic) of which is hereby duly acknowledged, this Agreement witnesses that the parties agree as follows…

[43] Assuming that the contract was fulfilled according to its terms, each party gave the other ten dollars. The first issue is whether such a straight exchange can actually constitute consideration. If that is what happened, I find that there was actually no consideration flowing to Jason, because he had to immediately return the ten dollars he was given. It would be absurd if the protections offered to vulnerable employees could be circumvented by an arrangement that permitted the employer to, in effect, wave ten dollars over the employee’s palm. This is not a matter of adequacy of consideration; it is that such a straight exchange, regardless of the amount involved, is no consideration at all.

[44] Accordingly, I conclude that even if each party actually gave the other ten dollars as stated in the agreement, Jason received no consideration for signing the January 3, 1996 non-competition/non-solicitation agreement.

[45] In the alternative, Jason testified that, in any event, the exchange of ten dollars never occurred. CEC argues that such evidence is inadmissible because it violates the parol evidence rule. The “parol evidence rule” provides that verbal evidence is inadmissible to vary, contradict, qualify or add to the terms of a contract reduced to writing. The rule is described by Professor G. H. L Fridman in “The Law of Contract” 6th ed. (Toronto: Carswell, 2011) at p. 440: “The fundamental rule is that if the language of this written contract is clear and unambiguous, then no extrinsic parol evidence may be admitted to alter, vary or interpret in any way the words used in the writing.” The Court of Appeal in Gutierrez v. Tropic International Ltd., (2002) 2002 CanLII 45017 (ON CA), 63 OR (3d) 63; 45017 (ON CA), describes the rule as follows (at para. 19):

Under the parol evidence rule, when the language of a written contract is clear and unambiguous, extrinsic evidence is not admissible to vary, qualify, add to, or subtract from, the words of the written contract. (See Chitty on Contracts, 28th ed., vol. 1, General Principles (London: Sweet & Maxwell, 1999) at p. 624 and St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 1995 CanLII 2482 (ON CA), 26 O.R. (3d) 321, 23 B.L.R. (2d) 1 (C.A.).) However, the rule is not absolute. It admits of numerous exceptions, including where it is alleged that evidence of a distinct collateral agreement exists, which does not contradict, and is not inconsistent with, the written contract.

[46] Justice Swinton, in Deonarine v. Lachman, 2004 CarswellONnt 850, [2004] O.J.No. 823, states that “There are, however, exceptions to the parol evidence rule. Such evidence may be adduced to vary or contradict a document if the evidence shows that a contract is invalid because of …lack of consideration…” Since the purpose of the oral evidence in this case is to show that the contract is invalid for lack of consideration, it fits squarely within this exception to the parol evidence rule.

[47] Finally, Jason’s evidence goes to the issue of performance, not construction. His evidence is not intended to alter the terms of the agreement; rather, it is evidence of whether he actually received the consideration that was promised. While this may be said to “contradict” the term that acknowledges receipt of the ten dollars, that is not the same as using oral evidence to alter unambiguous terms or show the existence of a collateral or supplementary agreement, which is the purpose of the parol evidence rule (Hawrish v. Bank of Montreal, 1969 CanLII 2 (SCC), [1969] SCR 515).

[48] Accordingly, Jason’s evidence that the parties did not actually give each other ten dollars is admissible, and I accept it as true. There was no evidence to the contrary. Therefore I also find on this alternative ground, that Jason received no consideration for signing the January 3, 1996 non-competition/non-solicitation agreement.

[49] The issue of consideration does not apply to Jeffrey, who signed the agreement on April 28, 2000 as a condition of his being hired. For Jeffrey this contract was not a change to his terms of employment, it was one of the terms of his employment.

Were the terms of the non-competition/non-solicitation agreement enforceable as against Jeffrey Reia?

[50] This issue is relevant for the period between February 15, 2009, when Jeffrey was terminated, and April 9, 2009, when the court order was issued. As indicated above, given that I have found that the brothers were working together during that period, the answer to this question is not strictly necessary.

[51] The defendants argue that the non-competition/non-solicitation clause in the employment agreement with Jeffrey is not enforceable because it is unreasonable. His challenge to these terms relate to paragraphs 2 and 3, which deal with confidential information, and paragraph 5, which prohibits competition and solicitation for six months following termination. For the purposes of my analysis, I only have to deal with paragraph 5, since the brothers did not really have any “confidential” information that they could use after they left CEC. The only issue is whether Jeffrey solicited CEC customers contrary to that agreement.[^2]

[52] The defendants take the position that a non-competition clause in an employment contract is presumptively void. In Lyons v Multari, 2000 CanLII 16851 (ON CA), [2000] OJ No 3462 (CA) at para. 19 the Ontario Court of Appeal stated:

The general rule in most common law jurisdictions is that non-competition clauses in employment contracts are void. This proposition, and the rationale for it, were succinctly stated by Lord Macnaghten in the leading English case, Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co., [1894] A.C. 535 (U.K. H.L.) at 565:

The public have an interest in every person carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule.

[53] In IMS Health Canada Inc. v Harbin, 2014 ONSC 4350 at para. 65-66 the Court states:

The Ontario Court of Appeal has repeatedly held that non-competition clauses in employment contracts are void as a general rule and will not be enforced, save in the “exceptional case” where the employer demonstrates that the employee to be restrained is so important and unique that another provision (such as a non-solicitation or confidentiality provision) is insufficient to protect its legitimate proprietary interests.

The Supreme Court of Canada has held that rigorous scrutiny must be applied to restrictive covenants in employment contracts “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.

[54] In Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344; 106 OR (3d) 72, the Court of Appeal discussed the governing principles that are applicable when considering whether a restrictive covenant in a contract of employment is unreasonable and therefore unenforceable. Referencing its earlier decision in H.L. Staebler Co. v. Allan (2008), 2008 ONCA 576, 92 O.R. (3d) 107, [2008] O.J. No 3048 (C.A.) the Court summarized the principles as follows (citations omitted):

▪ To be enforceable, the covenant must be "reasonable between the parties and with reference to the public interest";

▪ The balance is between the public interest in maintaining open competition and discouraging restraints on trade on the one hand, and on the other hand, the right of an employer to the protection of its trade secrets, confidential information and trade connections;

▪ "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";

▪ In that context, the three factors to be considered are (1) did the employer have a proprietary interest entitled to protection; (2) are the temporal or spatial limits too broad; and (3) is the covenant overly broad in the activity it proscribes because it prohibits competition generally and not just solicitation of the employer's customers?

[55] The Supreme Court of Canada, in Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157 held that an ambiguous provision in a restrictive covenant is prima facie unreasonable and unenforceable (at para43):

Normally, the reasonableness of a restrictive covenant is determined by considering the extent of the activity sought to be prohibited and the extent of the temporal and spatial scope of the prohibition. … [A] restrictive covenant is prima facie unenforceable unless it is shown to be reasonable. However, if the covenant is ambiguous, in the sense that what is prohibited is not clear as to activity, time, or geography, it is not possible to demonstrate that it is reasonable. Thus, an ambiguous restrictive covenant is, by definition, prima facie unreasonable and unenforceable. Only if the ambiguity can be resolved is it then possible to determine whether the unambiguous restrictive covenant is reasonable.

[56] Given these principles, I find that the non-competition provision in paragraphs 5(a) and (b) of Jeffrey’s employment contract are void and unenforceable. Jeffrey did not take with him any confidential information after he was fired from CEC. He took with him only the sales skills that he had learned as an employee. It is unreasonable to insist that he not be able to use those skills for six months following his termination of employment. The prohibition on being “directly or indirectly engaged in any company or firm which is a competitor” with CEC in any province in which CEC carries on business (which is all of Canada) is an overly broad restriction on Jeffrey’s ability to earn a livelihood in the computer parts industry.

[57] The prohibition in para. 5(b), which provides that Jeffrey may not “intentionally act in any manner that is detrimental” to CEC’s relations with its customers” is also vague and ambiguous. The activities (other than competition) it is intended to preclude are unspecified and uncertain, and therefore that clause is also unreasonable and unenforceable.

[58] In addition, examining the agreement as a whole and giving consideration to the other clauses in the agreement, there are other, more narrowly drafted clauses that protect the plaintiff’s legitimate interests (Mason, supra, at para. 23). CEC is adequately protected by clause 5(c) of the agreement, which prohibits Jeffrey from soliciting any of CEC’s customers/clients for a period of six months. No argument was made that the six month non-solicitation term in clause 5(c) was an unreasonable period of time in the circumstances of this case, and I find that clause 5(c) is a reasonable limit in the circumstances.

[59] Jeffrey argues, however, that the non-solicitation provision in clause 5(c) is unenforceable because it is a non-severable part the paragraph 5, which contains unreasonable and vague restrictions in clauses (a) and (b). I reject this argument. Paragraph 5(c) is a distinct provision that can survive on its own. It does not require “blue pencil editing” or rewriting the agreement by the court to make sense of para. 5(c). The non-solicitation clause is “a separate sentence or word group that can be severed intact from the offensive portions” of paragraph 5 (Orlan Kerigan & Associates Ltd. v Hoffman, [2001] OJ No 442 (SCJ) at paras. 27-28).

[60] Accordingly, I find that Jeffrey was subject to the terms of the non-solicitation clause (5(c)) when he was fired by CEC on February 15, 2009. He continued to be subject to that term until April 9, 2009, when he agreed to the terms of the Court Order of that date, which effectively replaced his prior legal responsibilities.

Was Jason Reia a fiduciary of CEC who therefore had a duty not to compete with CEC for a reasonable period after he left CEC?

[61] This issue applies only to the period of time between March 27, 2009 and April 9, 2009. The plaintiff’s position is that even if Jason was not subject to the terms of the January 3, 1996 non-competition/non-solicitation agreement, he still owed a common law fiduciary duty to his former employer to not solicit former customers for a reasonable period of time following his resignation on March 27.

[62] There is no question that Jason owed a fiduciary duty to his employer during the period from February 15, 2009 (when Jeffrey was fired) to March 27, 2009 (when Jason quit). He was still employed by CEC. I have already inferred from the evidence that Jason and Jeffrey worked in concert and in competition against CEC during that entire period.

[63] To be clear on this latter point, “a departing employee may plan and prepare for his next employment before departure from his existing employment. The boundary lies in when that preparation becomes actual competition, which trespasses on the basic duties” (Guzzo v Randazzo, 2015 ONSC 6936, at para. 167). If Jason had done nothing more than meet with a lawyer and incorporate JC Options prior to leaving CEC there may be no violation of his fiduciary duties to his employer. But JC Options was already a going concern operating in competition with CEC when Jason became a director of the company on March 20, 2009, and I have inferred from the evidence that Jason was working with Jeffrey to lure CEC customers to JC Options from at least the date of the first Metafore invoice of February 20, 2009, more than a month before Jason resigned from CEC. This amounted to actual competition.

[64] As of April 9, 2009, the brothers were subject to the court order, which replaced any prior legal responsibilities. Accordingly, the issue of Jason’s post-employment fiduciary duties to his former employer relate only to the two week period between March 27, 2009 and April 9, 2009.

[65] The plaintiff relies in this regard on Torcana Valve Services Inc. v. Anderson, 2007 ABQB 356, a case with similar facts to the present case. In Torcana an employee left his employment suddenly and without notice and took immediate steps to set up a competing business. Immediately following his resignation he directly solicited many of his employer’s clients. There was no contract with a restrictive covenant or non-competition clause. The Court stated (at para.31):

Fiduciary relationships arise out of situations of trust, discretion and confidence and require that the fiduciary act loyally in the beneficiary’s best interests. In the employment context, certain employees may become fiduciaries by virtue of their unique positions of power and trust within the employer’s organization: see Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 9 W.W.R. 609 (S.C.C.) at 629. Where it is established that an employee held a position of senior management or could be described as a “key” employee, he or she will be precluded from exploiting “that particular vulnerability that flows from the special or unique relationship between himself and his employer” for his own business interests: Physique Health Club Ltd. v. Carlsen (1996), 1996 ABCA 358, 141 D.L.R. (4th) 64 (Alta. C.A.) at 69.

[66] The court found the employee in that case to be a “key employee” because he was its only sales representative and was “trusted…implicitly with all customer relationships” (para. 36). While he was not a manager or an officer of the company, he was, to its customers, “the face and personification” of the company.

[67] The Court summarized the post-employment obligations of a key employee as follows (para. 49):

One of the significant reasons for imposing fiduciary duties upon a key employee is that the fiduciary has heightened obligations beyond the employment relationship. The scope of the fiduciary’s duties needs to be analyzed in each individual case and “will depend on the nature of the relationship and the expectations of the parties”… In Physique Health Club at 66-7, the Alberta Court of Appeal listed the following principles in determining the scope of a fiduciary’s obligations:

(1) A fiduciary cannot take a maturing business opportunity from an employer either while he or she is an employee or after the employment relationship has been terminated...

(2) In opportunity cases, there must be a misuse of the fiduciary's power before liability attaches...

(3) Competition with the Plaintiff after the employment relationship has ceased does not of itself constitute a breach of the fiduciary duty...

(4) The right to compete is qualified: the employee must not actively solicit the business of specific customers of the employer. The restriction continues "for a reasonable period of time after termination of the employment"...

(5) After the employment relationship has terminated, the employee must not use or disclose confidential information learned in the course of his or her employment... and

(6) Employees who are fiduciaries of their former employer breach those obligations when they take a confidential customer list and use trade secrets of the former employer for use in a competing enterprise...

[68] In determining the length of time that the employee in that case should have refrained from directly soliciting his employer’s clients, the court considered the following factors:

(a) The level of responsibility of the fiduciaries and those recruited to leave;

(b) The period of service;

(c) The nature and scope of preplanning;

(d) The degree or lack of candour;

(e) The timing in terms of relative vulnerability of the operation; and

(f) The steps required to react, particularly given the business significance of personal relationships with clients.

[69] The Court concluded that “it would have been reasonable for [the employer] to expect [the former employee] to adhere to his fiduciary duties for a period of six months following the termination of his employment. Six months should have been adequate time for [the employer] to train [the replacement] and do its best to cement its relationships with its existing clients, before being faced with direct solicitations from [the former employee] and his new company.”

[70] The law relating to the post-employment fiduciary obligations of former employees was extensively reviewed by Justice Whitten in Guzzo, supra:

In Imperial Sheet Metal Ltd. v. Landry, 2007 NBCA 51, 2007 CarswellNB 298, Justice Robertson observed that, “the Supreme Court has recognized the conceptual uncertainty surrounding the task of deciding whether somebody qualifies as a fiduciary” (ref. para. 49). The trilogy of Supreme Court decisions which developed the basic criteria were outside of the context of employment law…

The three hallmarks of a fiduciary relationship which emerged from these decisions were:

(1) the fiduciary has scope for the exercise of some discretion or power,

(2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interest, and\

(3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power …

As with any general statement or definition, the difficulty lies in the application. What might appear to be superficially trapped can torture the original concept. Justice Robertson was concerned that:

Courts should not be reading restrictive terms into employment contracts that could have been negotiated sometime prior to the disillusion of the employment relationship. In the global world, the titans of finance and industry pay millions in exchange for their executives executing noncompetition clauses. Why should courts be handing them out for free when it comes to employees of lesser stature? (see Imperial Sheet Metal Ltd., supra, at para. 6)

[A]ll employees have certain basic duties to their employers of loyalty and confidence during the course of their employment, but are otherwise free to compete with their employers post that employment. To hold too vigorous an application of the definition of a fiduciary could in effect restrict the mobility of labour.

Justice Robertson, in discussing the various approaches to who is a fiduciary, referred to the focus on whether or not the individual was a “key employee” as being a narrow approach, whereas a focus on “vulnerability” was the broad approach (ibid, at para. 5).

In any event, neither the fact of an employee being a key employee or the employer being vulnerable is determinative of the existence of a fiduciary relationship. They are simply two of the criteria to be considered in the determination.

Keeping in mind the two criteria of key employee and vulnerability of the employer, one can start with the actual job description of the individual employee, while being aware that the realities of the practice of the job may be somewhat different.

[71] Since Jason was not a manager or officer of CEC, the issue is whether Jason could properly be described as a “key employee”. In Guzzo, supra, Justice Whitten, citing earlier cases, sets out the indicia to be considered on the issue of whether a former salesperson was a “key employee” such that he or she owed a fiduciary duty to their former employer not to solicit former employer’s customers (at para. 127):

(i) What were the employee’s job duties with the former employer?

(ii) What was the extent or frequency of the contact between the employee and the former employer’s customers and/or suppliers?

(iii) Was the employee the primary contact with the customer and (or) suppliers?

(iv) To what extent was the employee responsible for sales or revenue?

(v) To what extent did the employee have access to and make use of, or otherwise have knowledge of, the former employer’s customers, their accounts, the former employer’s pricing, practices, and the pricing of products and services?

(vi) To what extent was the former employee’s information as regards customers, suppliers, pricing, etc., confidential?

[72] In Ford v. Keegan, 2014 ONSC 4989, [2014] O.J. No. 3995, Justice Price, considering the post-employment duties of fiduciaries, stated (at paras. 175-176):

Even former employees who are fiduciaries are not prohibited from competing with their former employer altogether, provided they do so “fairly”. Even a fiduciary employee, absent a valid agreement or statutory restriction, has the right to compete directly against his former employer. A fiduciary, under some circumstances, may even do business with a former employer’s customer when the customer has sought out the fiduciary. If a customer of the former employer comes to the fiduciary from the former employer because of the fiduciary’s reputation, or the customer’s personal relationship with the fiduciary, there is generally no breach of the employee’s fiduciary duty. The mere fact that a former customer of the employer becomes a customer of the employee very soon after the termination of the employee’s employment is not sufficient, in and of itself, to establish solicitation by the employee.

Even an employee who owes fiduciary duties to a former employer, and provides unsolicited services to the former employer’s customers may use information that is “know-how,” and part of the employee’s intellectual make-up. Additionally, a former employee may take to his/her new position skills and general knowledge acquired in the course of his former employ, and use them to compete against the former employer.

[73] Dealing specifically with the former employee’s exclusivity of relationship with customers as an aspect of a key employee, Justice Price states (at para. 195):

Courts have sometimes found that a former employee is a “key employee” based on the fact that the employee was the “face of the employer” to the world, or to certain customers of the employer. Thus, a fiduciary cannot unfairly exploit his relationship with his previous company’s customers, and his knowledge of their business, for his own benefit and to the detriment of the company.

[74] At para. 205, Justice Price provides the following examples:

There are circumstances …where the proportion of customers that the employer has assigned exclusively to its agent is so small, in relation to the scale of the business and of the employer’s presence within the industry, that the power reposed in the agent creates minimal vulnerability in the employer. That situation is very different than the one …where the employee had dealt with a substantial proportion of the firm’s customers for 17 years, virtually to the exclusion of his employer. In that case, allowing the employee to compete against his former employer would have too significant of a negative impact on the employer to not have been in the parties’ contemplation. There must have been an expectation of trust between them.

[75] In Planit Search Inc. v. Mann, 2013 ONSC 6847, Ricchetti J. commented on the jurisprudence in which certain employees had been held to owe a fiduciary duty to their former employers, and others had not. He concluded (at paras. 48-52):

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.

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.

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.

[76] A final consideration with regard to the common law duty not to compete with a former employer relates to the employee’s duty to provide reasonable notice when he resigns. In Guzzo, supra, Justice Whitten states (at para. 202) : “This court has held above that the employee is bound during the notice period not to compete with the employer. That point of view is somewhat academic in that [the employee] effectively provided no notice at all.”

[77] As indicated above, the issue of Jason’s post-employment duties to his former employer relate only to the period between March 27, 2009 and April 9, 2009. This is a period of less than two weeks. I find that Jason did have a fiduciary duty to his former employer to not solicit former customers for at least that period of time (I am not here concerned with the period past April 9, 2009, since that is covered by the consent court order).

[78] I make this finding on the basis of the following considerations:

Jason was a key employee of CEC. He was the top sales representative of the company, which had only seven sales representatives at the time that he left. He was the face of CEC to most of those customers, and the only person that many of the customers dealt with. Several customers testified that they never dealt with anyone else at CEC. He built relationships with those customers on behalf of CEC. He was a trusted employee who was given considerable autonomy to put together his own sales deals. Jason dealt with a substantial proportion of CEC’s customers for fourteen years, virtually to the exclusion of his employer. He was responsible for a substantial portion of CEC’s revenue. He resigned without any notice.

[79] Given all these circumstances, Jason owed a fiduciary duty to his former employer for at least the two-week period between his resignation and the consent order. Any reasonable notice requirement would have extended for at least that time.

If either Jason or Jeffrey Reia had a duty to not compete against CEC or solicit its customers (whether by contract or common law), did either Jason or Jeffrey Reia violate that duty?

[80] It will be helpful in answering this question to divide it into four parts based on specific time periods:

(a) For the period up to February 15, 2009, all parties agree that Jeffrey had a duty to not compete against CEC because he was still an employee. All parties agree that he used confidential information to bid against CEC during this period, and therefore violated his duty.

(b) For the period from February 15 to April 9, 2009, I have found that Jeffrey had a contractual duty to not solicit CEC’s customers in accordance with para. 5(c) of his contract of employment. I find that Jeffrey did violate this duty by soliciting CEC customers directly until April 9, 2009. Until that date, he made no distinction between calling the clients and waiting for them to call him. He simply continued the solicitations that he had begun while he was still an employee at CEC.

(c) For the period from February 16 to April 9, 2009, I have found that Jason had a fiduciary duty to not compete with CEC or solicit its customers. For the period from February 16 to March 27, this duty arose from Jason’s status as an employee, and is undisputed. For the period from March 28 to April 9, this duty arose from Jason’s fiduciary duty as a “key employee” who resigned without notice. I find that Jason, in combination with Jeffrey, did solicit CEC customers directly between February 15 and April 9, 2009, and therefore violated his duty.

(d) For the period from February 16 to April 9, 2009, I have found that Jason and Jeffrey were working together at JC Options to compete against CEC and solicit its customers. Jason conceded that Jeffrey engaged in such solicitation between February 15 and March 27, and that both brothers engaged in such solicitation between March 28 and April 9. Since I find that the brothers were working together during the period from February 15 to April 9, my analysis applies to both brothers for the entire period. Jeffrey’s post-employment solicitations on behalf of JC Options were conducted on behalf of both Jeffrey and Jason during this period.

[81] Accordingly, I find that both Jason and Jeffrey violated their respective duties not to compete and/or solicit CEC customers during the period from February 15 to April 9, 2009.

[82] I also find that during this period each assisted the other to breach his fiduciary duties. Crystal Delight Reai, while only a minor player, also assisted the brothers since she was registered owner of JC Options until incorporated and the profits from JC Options sales were reported as her income. As Strathy J. (as he then was) stated in Precision Fine Papers Inc. v. Durkin, 2008 CanLII 6871 (ON SC) (at para. 23):

It is also well-established that a third party who knowingly assists or participates in a breach of fiduciary duty, or who knowingly receives the fruits of such a breach, will be liable along with the breaching party: Anderson, Smyth & Kelly Customs Brokers Ltd. v. World Wide Customs Brokers Ltd. et al. (1996), 1996 ABCA 169, 184 A.R. 81 (C.A.).

Did either Jason or Jeffrey Reia violate the terms of the April 9, 2009 Court Order?

[83] There is no dispute that Jason and Jeffrey continued to present bids for work and do business with CEC customers after April 9, 2009. As indicated above, Jason and Jeffrey claim that after April 9, 2009 they stopped calling these customers, and waited for the customers to call them and request bids. A number of major customers were called who confirmed that after April 9, 2009 they called JC Options to request bids and were not called by JC Options. There is no evidence that this is untrue post-April 9, 2009. The only issue is whether these activities amounted to “soliciting orders” within the meaning of the consent Order. For ease of reference the relevant terms of the Order are as follows:

The Defendants, and any agent acting on behalf of them be enjoined… from directly or indirectly soliciting orders for computer memory or any type of server or network upgrade products from any person with whom Jeffrey Reia or Jason Reia conducted business on behalf of the Plaintiff at any time since January 1, 2005

[84] In Veolia ES Industrial Services Inc. v. Brulé, 2012 ONCA 173, the Ontario Court of Appeal held (at para. 44) that a bid submitted in response to a public tender is not a solicitation. Similarly, in IBM Canada Ltd v Almond, 2015 ABQB 336 the Court held (at para. 79) that responding to a request for proposals (RFP) is not solicitation. It is clear that the courts in these cases are deliberately interpreting the term “solicitation” narrowly to be consistent with the public policy in favour of promoting free competition.

[85] Consistent with this principle, in IT/Net Inc. v. Doucette, 2007 ONCA 52 the Ontario Court of Appeal upheld a Superior Court decision that in circumstances where the respondent was approached by a prospective client and accepted the business opportunity this conduct did not constitute a breach of a non-solicitation clause.

[86] In Fettes v. Culligan Canada Ltd., 2009 SKCA 144; [2010] 6 WWR 420 the Saskatchewan Court of Appeal adopted the following quotation form a British Columbia case that found that accepting work form a former customer does not, on its own, constitute direct or indirect solicitation (at para. 52):

This also reflects the general law regarding injunctions intended to restrain an employee from competing with a former employer. As stated in Wilson M. Beck Insurance Services Inc. v. Moroz, 2008 BCSC 113:

The starting point is that the plaintiff had a certain number of clients or customers, some of whom the defendant serviced. It is natural that a number of those customers might form a relationship with the person with whom they habitually dealt, and would come to see him, and not the firm for which he worked, as their principal contact. Nothing inhibits those customers who wish to continue with that person from notifying the company and taking their business to that person or that person's new employer.

The defendant is free to deal with customers who make [a] bona fide choice to move their business to him: he is simply not permitted under any circumstances to directly or indirectly solicit or entice business from the plaintiff.

[87] I have found one case in which submitting a bid at the request of a potential customer was considered to be “soliciting”. In Atlas Janitorial Services Co. v. Germanis, 1994 CanLII 7522 (ON SC), the plaintiff sought damages for loss of business suffered as a result of the defendant’s breaches of a non-solicitation clause in their employment contract. The court states at para. 70:

There is nothing intrinsically difficult in defining soliciting. It simply means to ask for or invite business. Although it was argued, I was not referred to any authority for the proposition that it is not soliciting to submit a tender or to quote on a contract so long as one is doing it at the invitation of the customer. There is no obligation to respond to an invitation to tender or quote. Although the first generates the second, the second does not follow inevitably.

[88] While this does support the plaintiff in this case, the Ontario Court of Appeal’s later decision in Veolia ES Industrial Services, supra, now provides the missing authority for the proposition that submitting a tender or bid at the invitation of a customer is not soliciting. I conclude that Veolia ES Industrial Services represents the applicable legal principle, and the submission of bids in response to tenders or RFPs does not qualify as direct or indirect soliciting.

[89] I also note that some cases discuss contractual provisions that provide that a former employee or owner is “not to solicit or accept business” from former customers (Reservoir Group Partnership v. 1304613 Ontario Ltd., 2007 CanLII 921 (ON SC), 84 OR (3d) 180, at para. 63 and 76). I take it from these cases that there is a distinction between “soliciting” and “accepting” business, which is consistent with cases like Veolia and IT/Net Inc. supra. Accordingly, I find that Jason and Jeffrey did not violate the terms of the April 9, 2009 Order by submitting bids in response to customers’ requests.

[90] Based on this definition of “soliciting”, I find that Jason and Jeffrey did not solicit CEC customers after April 9, 2009. If I am wrong about the definition of soliciting, and soliciting does include the submission of bids in response to customers’ requests, I would have to consider how long this prohibition continues in order to determine damages. While not strictly necessary for the purposes of my decision, I note that the plaintiff takes the position that it is entitled to damages for lost profit for up to five years. Had I determined that Jason and Jeffrey continued to solicit after April 9, 2009, I would have calculated damages for six months following Jason’s resignation on March 27, 2009. In my opinion, the six month period, which was the period CEC set out in its contract with employees, represents a reasonable period of time to prevent a former salesperson, even a key employee like Jason, form soliciting former customers. Given the nature of the business, in which each sale is based on a successful bid, any longer period would be an unreasonable restriction on free competition.

If either Jason or Jeffrey Reia violated the terms of the agreement or the order, what is the quantification of damages?

[91] The final issue relates to the quantification of damages for the period up to February 15, 2009 (where liability is admitted) and from February 15, 2009 to April 9, 2009, where I have found liability on the part of Jason, Jeffrey, Crystal Delight Reia and JC Options Inc.

[92] As noted by Sachs J. in KJA Consultants Inc. v. Soberman, 2003 CanLII 13546 (ON SC), [2003] O.J. No. 3175, [2003] O.T.C. 739 (S.C.J.)., at paras. 51 and 52:

Compensation for breach of fiduciary duty has a restitutionary objective. In a case such as this there are two different approaches to compensation:

(i) disgorging the benefits wrongfully acquired by the defendant, or

(ii) restoring the plaintiff to the position it would have been in if the breach had not occurred.

The first approach focuses on the defendant's gain; the second on the plaintiff's loss. The plaintiff may elect which approach to compensation they are seeking.

[93] In my opinion the quantification of damages in this case is the same regardless of which approach is taken. The witnesses who were involved in the computer parts sales business at this time (as both sellers and customers) consistently confirmed that the computer parts sales business became more competitive during that period, with shrinking profit margins, increased international competition and the elimination of “grey market” sales, where resellers sold items not authorized for sale by the manufacturer in a particular market at a reduced rate and higher profit margin. As indicated above, the needs and requirements of each customer would change with each contract, and each successive bid had to succeed on its own merits. This is not a case where customers were exclusive to CEC. Customers generally went with the lowest bid. Accordingly, JC Options cannot be held responsible for all of CEC’s lost profits during this period. They are, however, responsible for lost profits on sales taken from CEC customers by JC Options. Since the two firms had basically the same profit margins, the profits of JC Options equal the losses of CEC.

Period to February 15, 2009

[94] The defendants consent to the payment of $56,746 to the plaintiff for the sales made by Jeffrey and JC Options to CEC customers while Jeffrey was still an employee of CEC. This is based on their calculation of the profits from six sales totalling $194,435.95 (including taxes) to York Region District School Board and MIAD

[95] The plaintiff takes the position that the correct calculation is $58,331, based on the average profit margins for 2005 to 2007, when many of the sales took place. I accept the plaintiff’s calculation as more accurate.

Period from February 15, 2009 to April 9, 2009

[96] CEC is entitled to a return of the gross profits of JC Options for this period. The dates on the invoices reflect the date the order was made, not the dates of the bids. Any orders based on bids made April 9 or earlier would be caught by my decision, even if the order was not placed until after April 9. Accordingly, I am basing the damages on invoices to April 15, 2009. Based on the invoices provided, JC Options made approximately $297,000 in sales to CEC customers during this period. Based on a profit margin of 25% (which I accept to be the estimated profit margin for that year) damages for this period are $74,250.00.

[97] The Action is allowed. The defendants shall pay the plaintiffs damages in the amount of $132,581.00 and prejudgment interest in accordance with the provisions of the Courts of Justice Act, s. 128.

[98] If the parties cannot agree on costs, the plaintiff may deliver written submission within thirty days of this decision. The defendant’s submissions are due fifteen days later. Written submissions on costs shall be a maximum of three pages, not including the bill of costs and any offers to settle.

Charney J.

Released: January 22, 2016

[^1]: There was evidence that Jason provided “financial incentives” to at least one customer by splitting some of his commissions. One major client (Timothy Keskic of Metafore) testified that Jason, on more than one occasion, provided him with gift cards or cash in the amount of $5,000 to $10,000 as a “gift” or “reward” for placing large orders. He referred to these payments as “SPIFs” (Sales Person Incentive Funds). These “SPIFs” were paid directly by Jason out of his personal income, but were not reported on his tax return or declared by the recipient. While not directly relevant to my analysis, I find that this was a scheme created by Jason to increase his sales, and that CEC was not involved in them.

[^2]: Since I have decided that this contract does not apply to Jason because there was no consideration when he signed it, my analysis at this stage applies only to Jeffrey. If, however, I am wrong on the issue of consideration, my analysis on this issue would apply to Jason as well as Jeffrey.