Quarterback Transportation Inc. v Traffix Group Inc., 2018 ONSC 2668

COURT FILE NO.: CV-17-587203

DATE: 20180604

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

QUARTERBACK TRANSPORTATION INC.

Plaintiff

– and –

TRAFFIX GROUP INC., 673753 ONTARIO LTD., JOHN CLEGG, OTIENO ODENY, and JAIME HOWLETT

Defendants

Gerald J. Griffiths, for the Plaintiff

Andrew M. Porter, for the Defendants

HEARD: April 24, 2018

G. DOW, J.

REASONS FOR DECISION

1The plaintiff Quarterback Transportation Inc. (“Quarterback”) seeks an order:

a) that Traffix Group Inc. and 673753 Ontario Ltd. (“Traffix”) and John Clegg refrain from soliciting any employee of Quarterback for a period of 12 months from the date of the order;

b) that Traffix and John Clegg refrain from soliciting any client or prospective clients of Quarterback with whom John Clegg had contacted in the last six months of his employment with Quarterback for a period of 12 months from the date of the order; and

c) restraining Traffix and John Clegg from making use of copying, disclosing, or permitting the disclosure of confidential or proprietary information of Quarterback from the date of the order.

Background

2John Clegg and the other personal defendants were employed by Quarterback. Both corporate parties are in the transportation brokerage business. That is, they match customers seeking to move loads at the lowest price with carriers looking to fill their trucks moving loads from one location to another for the maximum amount the market will bear. Most customers use more than one broker. Carriers are driven by service and price and most carriers use a variety of brokers to keep their vehicles as fully loaded as possible and moving to maximize revenue and profit.

3The request for the above injunctive relief against the defendants, Otieno Odeny and Jaime Howlett was abandoned on April 10, 2018. The personal defendants are three of at least six that resigned from positions at Quarterback and found jobs with Traffix in 2017.

4After John Clegg started working for Quarterback on July 28, 2010, he signed an Employment Agreement dated November 10, 2014 which contained a requirement he keep information such as “trade secrets; business and marketing plans; financial and accounting information; and customer account and supplier information” confidential (Section 6). The next section dealt with non-solicitation defining both customers, potential customers and business and restricted John Clegg from soliciting business for his or such third parties benefit from such customers for 12 months. The agreement provided for, “in the event of any breach, Quarterback is entitled to injunctive relief and damages”.

5John Clegg was earning more than $50,000.00 per year as a base salary and several times more than that from commissions as an account manager, level 4 with Quarterback when he resigned on September 8, 2017. He did so to assume a similar position with Traffix which started September 25, 2017. The position was identified through a recruiter, Julie Klin.

6On August 30, 2017, John Clegg compiled and forwarded confidential information of Quarterback to his personal email account that contained customer information, pricing and rates, lanes, carrier dates and profitability. This was discovered following his departure and removed from his possession and control following receipt of a letter from counsel for Quarterback to counsel for Traffix in October, 2017.

7After starting to work at Traffix, John Clegg began to contact some of Quarterback’s customers. The statement of claim was issued in or about November 24, 2017.

Analysis

8The test for an interlocutory injunction from RJR – MacDonald Inc. v. Canada (Attorney – General), [1994] 1 S.C.R. at pages 348-349 contains three parts:

a) is there a serious issue to be tried;

b) will the moving party suffer irreparable harm if an injunction is refused; and

c) does the balance of convenience favour granting an injunction.

9Regarding the first part of the test and whether there is a serious issue to be tried, I ordinarily need only find the claim is not frivolous or vexatious. However, when an employer seeks to restrict a person’s ability to earn a living, a strong prima facie case is required (see Optilinx Systems Inc. v. Fiberco Solutions Inc., 2014 ONSC 6944 at paragraph 6).

10A balance needs to be struck between protecting the right of the individual to earn a living and the damages, if any, the ongoing activities are having on the business of the former employer. In my view, the businesses before me are highly competitive and more recently, given the decisions upon which I can rely, somewhat litigious. A prima facie case is one that is likely to succeed. Here, there is ample evidence that John Clegg and Traffix are ready, willing and able to begin doing business with the customers of Quarterback. Quarterback describes its business as focused on relationships. The activities of John Clegg and emailing himself company documents and reaching out to customers are detailed in the materials (such as his email to Cary Sexton and Cynthia Guy on September 28, 2017).

11To the contrary, are the terms of the employment agreement with regard to soliciting the business enforceable or too broad? I have little difficulty with John Clegg and Traffix not being able to approach existing clients. I have some difficulty with it being for 12 months which seems too long. I have great difficulty with it extending to potential customers of Quarterback. In this regard, it should be noted Quarterback kept a record of even one phone call making an enquiry about their services and compiled a list of 23 such contacts at that level or greater.

12As part of considering whether there is a prima facie case, counsel for John Clegg and Traffix submitted I should examine:

a) whether the non-solicitation clause is enforceable;

b) whether John Clegg breached its provision;

c) was John Clegg a fiduciary of Quarterback while employed there?; and

d) should Traffix be subject to any order made against John Clegg?

13With regard to whether the non-solicitation clause is enforceable, counsel for Traffix and John Clegg pointed to an inconsistency between the length of the pre-departure contact, being six months and the post-departure limitation, being 12 months. I disagree. In my view, using the shorter time to determine what has become a list of 23 customers, 23 prospective customers and five carriers focuses on the more recent and relevant business activity. It appears to narrow the restrictions rather than making it more broad. Were this the only consideration, I would find in favour of Quarterback.

14Counsel for Traffix and John Clegg raised the claim to be void as being an unreasonable restraint of trade. I disagree. As pointed out in submissions, there are thousands and thousands of carriers or more than enough for John Clegg to start fresh in soliciting carriers and customers. It was known to the recruiter, Julie Klin that “Sales professional comes with a non-solicitation or non-compete” and “over the past couple of years started suing the pants off of each other!”. I infer this was known to those at Traffix that hired him. I have no doubt John Clegg was hired, in part, due to his skill and ability to find new customers and carriers.

15Further, I reject the submission of counsel for Traffix and John Clegg that the plaintiff seeking to prevent John Clegg from doing business with 23 clients, 23 potential clients and five suppliers as too broad given the vast number of potential clients and suppliers available.

16Regarding the duration being too long, I am prepared to acknowledge that one year is likely too long and beyond the time necessary for Quarterback to develop an employee to fill the position. I agree with the comment in The Law of Confidential Business Information, by Keith Fairbairn and my colleague, Justice Thorburn, Chapter 8:32 in this regard.

17Finally, counsel for Traffix and John Clegg raised the scope of the restriction given the list of potential customers was narrowly defined to even a single phone call. This is a valid submission that supports the restriction is too broad. However, it is not the decisive factor.

18The parties disagree on whether John Clegg was a fiduciary of Quarterback. Quarterback relies on the factors described in Ford v. Keegan 2014 ONSC 4989 being:

a) the position and responsibilities of the individual are essential to the employer’s business, making the employer particularly vulnerable to competition on the employer’s departure;

b) the employee is the “face of the employer” to certain customers;

c) an expectation of trust; and

d) the possession of confidential information.

19Traffix and John Clegg point to his not being a director, owner or part of senior management. Most importantly, in a similar situation considered by my colleague Justice Shaw in Titanium Logistics Inc. v. B.S.D. Linehaul Inc., 2017 ONSC 7526 where the employee that left was also an account executive in a company seeking work from the same customer, the conclusion was the employee that left was not a fiduciary. Justice Shaw relied on the absence of any managerial or director duties and that the employee was a commissioned sales person. Justice Shaw was not provided with evidence about the number of other commissioned employees. In this matter before me, it was not contested that John Clegg was one of 30 account executives of Quarterback. Further, Corin Fields, a founder and Executive Vice President of Quarterback acknowledged in a cross-examination in March 2018 that the company remained profitable and was not on the brink of insolvency or bankruptcy.

20As a result, I must conclude that Quarterback has failed to make out the prima facie case required to obtain the extraordinary relief sought. Should it be necessary, I would refer to my comments above with regard to the other parts of the test. That is, with regard to the moving party suffering irreparable harm, I conclude it will not (that cannot be assessed as damages following a trial). As just stated, Quarterback remains profitable and John Clegg was only 1 of 30 account executives contributing to Quarterback’s profitable business.

21In my view, my conclusion as to the first two points of the test lead to my conclusion that the balance of convenience does not favour granting an injunction.

Conduct of Traffix and John Clegg

22While Traffix and John Clegg have been successful in defeating Quarterback’s motion, I must indicate my concern with the attitude and approach of Traffix and John Clegg in the change of employment. John Clegg’s emailing himself documents on August 30, 2017 was admittedly inappropriate and apparently required legal involvement to be corrected. One of the defendants of Traffix that recruited John Clegg was Duane Coghlan. Julie Klin, the recruiter, described him to John Clegg as having “dealt with every angle of non-compete etc. and isn’t afraid of anyone”. In addition, Duane Coglan’s name appears in FLS Transportation Services Inc. v. Charger Logistics Inc., 2016 ONSC 3652, a decision of my colleague, Justice Faieta in which the same circumstances and relief was sought. It suggests flagrant disregard for the terms of a contract of employment, the enforceability of that contract and if resulting damages has occurred. These issues have yet to be determined. This inference is reinforced by the absence of any evidence from Duane Coghlan in the material served by Traffix.

23As contained in paragraph 29 of the factum of Quarterback, John Clegg did not appear to take seriously his November, 2014 agreement with regard to non-solicitation of Quarterback’s existing customers. To one client on September 28, 2017 his email states “I left QB 3 weeks ago I gave 2 weeks’ notice but they made me leave right away. Best 2 weeks paid vacation ever. I have attached a little package about the company and as I mentioned we are looking for Van and Flat freight to Canada as well as domestic from VA and TN heading south to the North East and Mid west. I would love to get set up and start moving some loads for you again it was always tons of fun”. In a subsequent email, John Clegg advised the rates would be “the same”.

24On September 29, 2017 John Clegg emailed another customer “remember I know the score and know Crown’s expectation with EDI macro point and what not”.

25On September 28, 2017, John Clegg emailed a third client, “I am sure you heard that I parted ways with QB I am now at Traffix. I can still service the lanes I did with you for the same rates on my own equipment”.

26My conclusion is that this was a flagrant disregard of the spirit of the if not the legality of understanding John Clegg’s employment with Quarterback involved sensitive information and relationships which were properly for the benefit of Quarterback and not John Clegg or any new employer.

Costs

27Counsel for Quarterback provided a Costs Outline in the amount of $39,430.12 on a partial indemnity basis. Counsel for John Clegg and Traffix provided a Costs Outline in the amount of $56,529.67 on a partial indemnity basis. These Costs Outlines were provided in accordance with Rule 57.01(6). Rule 57.01 and Section 131 of the Courts of Justice Act, R.S.O. c.C.43 provides a discretion to the court to “determine by whom and what extent the costs shall be paid” in a proceeding or a step in a proceeding. My conclusion is that the conduct of Traffix and John Clegg described above were merits the exercise of this discretion to deny what would ordinarily be their entitlement to costs.

28As a result, there shall be no order as to costs.

_____________________________ Mr. Justice G. Dow