COURT FILE NO.: CV-18-596223
DATE: 20180613
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Berkeley Payment Solutions Inc., Plaintiff/Moving Party
AND:
Brian Miller, Paul Jones, and Payfare Inc., Defendants/Responding Parties
BEFORE: Justice S. Nakatsuru
COUNSEL: Jeffrey P. Mitchell and Maddie Axelrod, for the Plaintiff/Moving Party
Kevin Robinson, for the Defendants, Brian Miller and Paul Jones
Cindy A. Farrell, for the Defendant, Payfare Inc.
HEARD: May 25, 2018
ENDORSEMENT
[1] Brian Miller left his job as Chief Technology Officer at Berkeley Payment Solutions Inc.("Berkeley") and started working for Payfare Inc. ("Payfare") Paul Jones who was the Director of IT Operations also left Berkeley soon after. Berkeley was not happy about this. It has sued all three co-defendants. The company now seeks injunctive relief to prevent Mr. Miller and Mr. Jones from divulging confidential information and from working for a competitor and PayFare from inducing any or all of these breaches.
[2] For the following reasons, I dismiss this motion.
[3] Berkeley seeks a permanent injunction. There has been cross-examination conducted on the affidavits. The main issue in the case involves a restrictive covenant. The parties agree for relief to issue, Berkeley must satisfy the following test:
(i) There is a strong prima facie case;
(ii) That irreparable harm will result if the relief is not granted; and
(iii) The balance of convenience favours the moving party.
[4] Of course, this test must be applied separately to Mr. Miller, Mr. Jones and Payfare although there are common factual grounds.
[5] This case is essentially about alleged breaches of non-competition clauses and confidentiality clauses arising out of written agreements made in an employment and shareholder context. The other allegations of breach of fiduciary duty, good faith and loyalty, and inducing a breach of contract are tied into the same legal and factual matrix. The plaintiff no longer relies upon any allegations of a breach of a non-solicitation clause as there is no evidence of this.
A. THE NON-COMPETITION COVENANT
1. Strong Prima Facie Case
[6] There are two types of non-competition provisions at issue: (1) one found in the employment agreements of Mr. Miller and Mr. Jones; and (2) one found in a shareholder agreement that Mr. Miller signed to purchase stocks of Berkeley.
[7] There is no case against Mr. Jones. Mr. Jones is unemployed. He is not working for any alleged competitor. While Berkeley suspected, given his past working relationship between Mr. Miller and Mr. Jones, that Mr. Jones would end up with Payfare, there is no evidence of this. There has been no evidence brought forward that Mr. Jones is even in contact with Payfare. Payfare does not know Mr. Jones. There has been no material discussion between Mr. Jones and Mr. Miller about the former working at Payfare. There is no basis for an injunction to go against Mr. Jones for breaching the non-competition clause in his employment agreement. There is no case for trial on this issue, let alone a strong prima facie case.
[8] With respect to the motion for an injunction against Mr. Miller and Payfare regarding the non-competition covenants, there are two issues when it comes to satisfaction of the strong prima facie case requirement: (1) are the businesses of Berkeley and Payfare sufficiently similar that they fall within the terms of the non-competition clauses of the employment and shareholder agreements; and (2) are the non-competition covenants enforceable?
(i) Breach of the Non-competition clause: Are Berkeley and Payfare Competitors?
[9] In the employment agreement between Mr. Miller and Berkeley there is a non-competition clause. The clause states for a period of one year from the date of termination of employment, Mr. Miller will not work within North America without Berkeley's consent, carry on, be engaged in or employed by any person engaged in or concerned with or interested in a business which is the same as or substantially similar to or in competition with Berkeley.
[10] In addition, Mr. Miller bought some shares of Berkeley Street Holdings Inc. ("Berkeley Street Holdings") which holds the shares of Berkeley. In that shareholder's agreement, there is a non-competition clause. Mr. Miller cannot without consent, for as long as he holds shares and for a period of 24 months after divesting himself of the shares or putting the shares into a voting trust, anywhere within North America, directly or indirectly, in any capacity whatsoever, engage in any capacity whatsoever in a business that directly or indirectly competes with Berkeley Street Holdings.
[11] A significant issue in determining whether a strong prima facie case has been made out turns on the consideration of whether Berkeley and Payfare are substantially similar businesses or directly/indirectly competes with each other. Berkeley has provided evidence and argues it has met this threshold. Mr. Miller and Payfare have provided evidence and argue they have not.
[12] I have carefully considered the evidence and the submissions and find that Berkeley has not met the test that Mr. Miller has breached his non-competition agreements because I find Berkeley and Payfare are sufficiently different that the material clauses have not been breached.
[13] Let me say this before I get to the reasons for this conclusion. First of all, this is not a final determination of the trial issues. I have only considered this matter based upon the evidence provided.
[14] Secondly, I fully appreciate that in any case involving such clauses there will be both similarities and differences between the two relevant business operations. It is not simply a matter of tallying them. In addition, I fully appreciate whether something is similar or different between the companies may depend on how one views or characterizes it. For instance, birds and mammals may be thought very different, but they are also similar to each other being both animals as compared to plants. I must be sensitive to this. Finally, this is not an abstract exercise, but it relates to the terms and conditions of the contracts and a determination of what the parties contracted for.
[15] These are the reasons for my conclusion:
- The business model for Berkeley and Payfare are significantly different. Payfare is in the business of micro-loans to Uber drivers. Through pre-paid credit cards and a banking app, Payfare will take the receivables earned by Uber drivers and provide instant funds up to a daily limit to the drivers after taking a fee for such transactions. It is similar to payday loan companies who provide services for customers who do not wish to wait for their paycheck. Berkeley is not in the business of making such micro-loans or advancing any loans. Berkeley essentially acts as a middle-man for banking institutions whose prepaid credit cards are used by businesses, at times large corporations, who use them for rewards, incentives, rebates, allowances, expenses etc. A significant portion is custom prepaid credit cards that can be branded for the benefit of the business customer. It obtains, sometimes customizes, distributes and operates those cards. Berkeley is paid monies for these cards by the customer and then Berkeley gets the cards, loads them, and gives them back to the business customer. Berkeley is paid fees for their services from various sources but not for any advancement of any funds. On the other hand, Payfare does not create custom prepaid credit cards nor does it act as a middle man is such a fashion. In short, they do not offer the same type of value for their services that Berkeley does.
- There mere fact that both companies use prepaid credit cards, which is the obvious common feature of both business models, does not make them competitors, directly or indirectly, or substantially similar. To focus on this would make many businesses who use similar mediums of payment or fund transfers fall within the meaning of these non-competition clauses. Rhetorically, if a company used cheques or electronic banking transfers in their business, would they be included? Berkeley argues that they are substantially similar because they are both in the payments transfer business. However, that assessment operates at a level of generality too broad to be persuasive. If accepted, this would make countless of different and varied businesses subject to these clauses. This would be both an unreasonable interpretation of the clauses and an unreasonable assessment of the evidence.
- In addition, the two companies do not compete for the same customers. Payfare's customers are individual Uber drivers. While they have a business relationship with Uber, they provide service to the independent Uber drivers. Berkeley involves a wide variety of customers including large financial institutions and other corporations. Their customers do not include individual contractors like Uber drivers or those who provide similar services in a similar way. I appreciate the evidence that Berkeley has a couple of corporate clients involved in food delivery and that in New York, Payfare has an arrangement with a leasing company for Uber drivers, but I am far from convinced this has much probative value in demonstrating that Payfare and Berkeley compete for the same customers or clients. Indeed, the CEO of Berkeley has even suggested that perhaps Payfare could become one of Berkeley's customers once this litigation is resolved. In short, the evidence that they do not compete for the same customers supports Payfare's position.
[16] Therefore, I find that the moving party has failed to show a strong prima facie case in this regard.
(ii) Breach of the Non-competition clause: Are they enforceable?
[17] In my view, there is another reason why Berkeley has not met its onus. There is no strong prima facie case that these clauses are enforceable.
[18] As a general rule, such restrictive covenants particularly in employment agreements are void. The general principle is that the plaintiff must establish that it has a proprietary interest entitled to protection, that the temporal and spatial features of the clause are not too broad, that its terms are clear and certain, not vague and ambiguous, and in the all circumstances, the restriction is reasonably required for the plaintiff's protection. The restrictive covenant must be interpreted and enforced in their entirety and are not to be read down except for trivial parts. Reasonableness must be interpreted at the time the agreement was made and includes expectations of what might happen in the future.
[19] In my view, the employment clause in the agreement suffers from a number of frailties. There is little dispute that the plaintiff has a proprietary interest entitled to protection, but this clause is overly broad, vague, ambiguous, and not reasonably required for its protection. The temporal restriction is for a period of one year; a relatively lengthy period of time that would have significant impact on Mr. Miller for no ascertainable reason. It covers a geographic area where the evidence shows Berkeley does not do or intending to do business in like Mexico. Perhaps, more importantly, it covers a large swath of potential activities Mr. Miller could be involved because these activities are captured by the vague wording that he not "carry on, or be engaged in, or employed by, any person engaged in or concerned with or interested in a business." It is hard to tell what would not be restricted by such a phrase. It would restrict him from providing services in any capacity to such a business. Finally, that business cannot not only be the same as Berkeley, but also cannot be "substantially similar" to or in competition with Berkeley. Such a restriction is not only vague but would prohibit Mr. Miller from accepting employment with a business that is merely "substantially similar" but not engaged in competition with Berkeley. This clause goes significantly beyond whatever reasonable objectives Berkeley may have in protecting its proprietary interests in making such an agreement.
[20] Thus even if I am wrong in my conclusion that Berkeley has not established a strong prima facie case that Payfare is the same or substantially similar, it has not established a strong prima facie case that this restrictive covenant is enforceable.
[21] The situation is not as clear for the shareholder's agreement since it is not strictly speaking an employment contract. I appreciate Berkeley's submission about the significant contextual difference of a shareholder agreement compared to an employment contract. Had the test been less than a strong prima facie case standard, I may have been inclined to find that the moving party has met this branch of the test for an injunction. However, when I take all the factors into consideration, I am not satisfied that this test has been met. This is because while not an employment contract, it still nonetheless unreasonably restricts the ability of a shareholder employee of the company. It is similarly broad in terms of its geographic application as Mr. Miller's employment contract. It is broader when it comes to the length of time it would apply to him. He would be prohibited for two years. Further, this only starts when he divests himself of the shares or puts his shares in a voting trust in a form and content that needs approval from the Board and the CEO. Given that this is a small company that is not publicly traded and given the approvals required, Mr. Miller may find himself having great difficulty even getting this clock ticking. Finally, I note that it restricts him from being engaged in anyway, directly or indirectly, in a business that not only directly but also indirectly competes with the business. Not only is it vague but it is also sweeping.
[22] There is another consideration when it comes to the shareholder agreement. The shareholder agreement Mr. Miller has is with Berkeley Street Holdings. This is a holding company that holds the shares of Berkeley. Berkeley Street Holdings has no employees. Read literally, the agreement only restricts the conduct of shareholders who are employees of Berkeley Street Holdings. Mr. Miller was never an employee of Berkeley Street Holdings. On a plain and clear reading of the contractual language, it has no application to Mr. Miller. While it is true that Mr. Miller's belief was that he was bound by the clauses in his capacity as an employee of Berkeley, his subjective intentions are not ruling when it comes to interpreting this contract. In addition, I do agree that the doctrine of contra proferentum would support Mr. Miller's position. All that being said, if this was the only submission being relied upon by Mr. Miller in this branch of the injunctive test, I would not be inclined to reject the application of my equitable jurisdiction solely on this basis. Of course, however, it is not.
2. Irreparable Harm
[23] It is not necessary to deal with this prong of the test. However, if I am mistaken about the failure to establish a strong prima facie case, I find there is insufficient evidence presented that any harm would result if Mr. Miller continued working for Payfare. Speculation and fear of harm, even if understandable, is not an adequate substitute. Given my views about how different the companies are this conclusion is inevitable. Furthermore, I am not satisfied that monetary damages would not be able to compensate Berkeley. While it may be difficult, any potential loss of business, goodwill, or market share is quantifiable by monetary damages. Finally, I do not accept the moving party's argument that in his agreements, Mr. Miller has accepted that irreparable harm would be caused by his breaches. Merely inserting a clause showing that Mr. Miller acknowledges irreparable harm in his agreement is not an adequate substitute for evidence.
[24] Thus this aspect of the test for an injunction has not been met.
3. Balance of convenience
[25] The plaintiff further submitted that Mr. Miller's breach of his non-confidentiality clause is an added factor to be considered on why an injunction to prohibit breaches of the non-competition covenant should issue. I will in the next section describe the nature of that alleged breach. For the moment, I do not see it as a significant factor in the analysis with respect to the non-competition clauses given the comparatively minor nature of any alleged breach of confidentiality.
[26] Here the balance of convenience tips firmly in favour of Mr. Miller. If the injunction issues, Mr. Miller will face a significant obstacle to his ability to earn an income for a significant period of time. No doubt, given that this is all happening during a critical time of Payfare's growth and development, it will seek to fill Mr. Miller's position and this employment opportunity will be lost. In short, Mr. Miller will lose his job. The issuance of an injunction will therefore for all practical purposes be a final determination of the lawsuit. Counterbalancing this for the reasons already noted above, I find little evidence of any harm befalling Berkeley should this injunction not issue.
B. CONFIDENTIALITY PROVISION
1. Strong Prima Facie Case
[27] There are confidentiality provisions in the employment contract of both Mr. Miller and Mr. Jones. Berkeley seeks an injunction enjoining Mr. Miller and Mr. Jones from divulging any confidential information as defined in these agreements. In addition, it seeks to enjoin Payfare from inducing or encouraging any such breach.
[28] Let me first address Mr. Jones. I find that Berkeley has not met their onus to establish that Mr. Jones has breached or will breach any confidentiality provision. At the very best, Berkeley has a suspicion through their analysis of Mr. Jones' use of his employment computer. However, the evidence to establish that Mr. Jones has inappropriately taken or used confidential information of the plaintiff is remarkably thin. The expert evidence provided has little weight. In all likelihood, the pattern of use and Mr. Jones's action can be ascribed to his work duties as the Director of IT. In addition to this, Mr. Jones has denied any impropriety or breach of the confidentiality provision in his employment agreement. I find there is no reason not to accept that evidence. This is particularly so given that Mr. Jones is presently unemployed and has no reason to divulge any confidential information of Berkeley. Moreover, Payfare, which the plaintiff alleges is the intended recipient of any confidential information, has denied ever receiving any from Mr. Jones who they have had no contact with at all.
[29] With respect to Payfare, I accept their evidence that they have not received any confidential information either from Mr. Jones or Mr. Miller. On behalf of Payfare, Mr. Power provided an affidavit. He was cross-examined on it. The evidence on this motion is that Payfare has not received any confidential information of Berkeley from any source including Mr. Miller and has indicated that it will not at any time receive any confidential or proprietary information. This is confirmed by the evidence of Mr. Miller. The plaintiff, including Mr. Jonathan Hamburg, the CEO of Berkeley, cannot point to any evidence establishing that either Mr. Miller or Mr. Jones has disclosed any confidential information to Payfare. There is no case presented that Payfare received confidential information or encouraged or permitted Mr. Miller or Mr. Jones to breach this contractual obligation of confidentiality to Berkeley.
[30] That said, the same state of affairs does not exist for Mr. Miller. There is evidence that Mr. Miller did not deal appropriately with some confidential and proprietary information of Berkeley. A USB was taken by Mr. Miller from his employment with Berkeley. This USB has since been returned. On that USB were a number of items:
- Some personal documents and photos of Mr. Miller. I have no difficulty accepting that these items raise no confidentiality concerns. They were material personal to Mr. Miller that he was entitled to take or that were there inadvertently. This included some photos of whiteboard drawings.
- Information Security Policies and related documents of Berkeley. These too raise no confidentiality concerns. I accept Mr. Miller's evidence that when he gave notice of his resignation, he was intending on working on these documents prior to him leaving his employment so that his replacement would not have to be burdened with them.
- A document belonging to a third party company named "i2c". Berkeley has had past contact with i2c, a payment processor, but decided not to enter into a working relationship with i2c. Mr. Miller testified that he took this document that belonged to i2c because he knew that i2c worked with Payfare and he thought that he could use this material to help him prepare for his new job. This document was marked confidential and the property of i2c and Mr. Miller expected that there would have been a non-disclosure agreement between Berkeley and i2c. It did not occur to him to get the document from Payfare. He did not intend to use it in his new employment but to help him prepare for it. In cross-examination, Mr. Miller agreed that he used bad judgment in taking this document and that he likely breached Berkeley security policies by taking it with him.
- The technical strategy document of Berkeley. These are essentially a series of Power Point slides that deal with IT strategy. Mr. Miller testified that he had been developing this over the years to help guide him on best practices to make sure any work done was aligned with that strategy. The Berkeley document was based upon slides that Mr. Miller had done for a previous employer, Nightingale. He testified that he started the document even before he worked for Nightingale and the product had evolved over time. He testified that the document was generic but also detailed and contained information specific to his employer. The Nightingale document was marked confidential and proprietary. Mr. Miller testified that he did not ask for permission to take it but he felt that it was work he had done for his own purposes and thus had implicit permission. Mr. Miller testified that he could have reproduced it from his own head but that it was easier to keep it, reformat it, and evolve it. Mr. Miller agreed he copied the Nightingale document into the Berkeley document but he did not think it to be wrong.
[31] It is the last two documents that are concerning. I fully appreciate Mr. Miller testified that he did not breach any confidentiality provision of his employment contract. Even based upon the written transcript, I find that Mr. Miller appeared to be a candid witness. He admitted his mistakes although he has his own interpretation of his actions. I accept that he was not ill-motivated and did not fully appreciate the nature of his actions. That said, I have to agree with counsel for the plaintiff that based upon Mr. Miller's admissions, there is a strong prima facie case that Mr. Miller breached his confidentiality agreement in this very limited way. This is not to foreclose a different result should this matter go to trial. At this point, I will say that I am satisfied that the plaintiff has discharged its onus on this.
2. Irreparable Harm
[32] I find that the plaintiff has not shown it will suffer irreparable harm if Mr. Miller is not enjoined from disclosing the plaintiff's confidential information. I have concluded this for several reasons. Based upon the record, I see little harm actually having being caused to the plaintiff based upon Mr. Miller's taking of these documents. First of all, the USB has been returned and Mr. Miller has made no copy. Secondly, I accept his evidence that he has not disclosed any of this information either to Payfare or anyone else. This is also confirmed by the evidence of Payfare. Thirdly, I cannot see the documents taken by Mr. Miller having much direct value for Payfare. They already have the i2c document or would likely be able to access it on its own accord given their existing relationship. The Technical Strategy document is one that Mr. Miller developed, is applicable to other settings, and can likely be duplicated based on his own knowledge and experience even apart from any confidential information he gained from Berkeley or Nightingale. Fourthly, I find that Mr. Miller has been suitably educated and chastened for his conduct. I do not see it likely that Mr. Miller will be tempted to act in such a fashion that would even remotely incur the possibility that his conduct will be scrutinized in this kind of way in the future. The mistakes he made were not egregious and his explanations were understandable. It does not raise a concern that Mr. Miller will continue with this type of behavior. Fifthly, Payfare has indicated that it will not receive any confidential information from Mr. Miller. I see no reason to doubt it. It has also taken significant steps to ensure no confidential information has come into Payfare's possession. Finally, even if there were any damages suffered by Mr. Miller's actions, they can be quantified in a monetary fashion. As a result, the plaintiff has not met this aspect of the test.
3. Balance of convenience
[33] I find that this part of the test is quite evenly balanced. On the one hand, given the circumstances described above, I find little or no harm will be suffered by Berkeley if an injunction is not given. I do appreciate their anxiety about what Mr. Miller may do in the future but the evidence does not support that fear. I do not find that Mr. Miller has acted so inappropriately that it would justify that fear. He has made some mistakes. However, a common-sense perspective must be taken of Mr. Miller's actions. What he did is a far cry from a scenario where an employee leaves with a treasure trove of confidential information taken secretively to be used for whatever purposes to the potential detriment of the past-employer. In this case, there are only two relatively benign documents taken that could be said to be a breach of a confidentiality provision for which Mr. Miller has given quite forthright explanations for. Documents that have been returned quickly without misuse. On the other hand, as pointed out by the plaintiff, to enjoin Mr. Miller from not divulging confidential information of Berkeley's would do no more than require him to do what he legally contracted to do. That said, an injunction should not issue solely to deliver a message to the enjoined party. In any event, if any message was necessary, it has been delivered.
[34] As a result, Berkeley has not shown that the balance of convenience lies in its favour for the injunction to issue.
C. PAYFARE INDUCING A BREACH OF CONTRACT
[35] This can be disposed of quickly. First of all, Payfare did not induce Mr. Miller to breach his employment contract with Berkeley. Mr. Miller was headhunted. When offered a position, Payfare was not aware of any of the contentious non-competition clauses. Secondly, as I have already held, there is no strong prima facie supporting a breach by Mr. Miller of these covenants. Thus, it is not material that Payfare continued offering Mr. Miller employment after it became aware of the issue, after their own employment contract with Mr. Miller was signed. I find therefore the issuance of an injunction against Payfare is not appropriate. Finally, if I were required to determine it, the balance of convenience would be in favour of Payfare. An injunction would lead Payfare to breach its contract with Mr. Miller, waste past efforts to fill his position, and require Payfare to find another employee at what they say is a critical time for the company.
[36] If the issues of costs cannot be resolved between the parties, I will entertain written submissions, each one limited to two pages excluding any attachments (any Bill of Costs, Costs Outline, and authorities). Mr. Miller, Mr. Jones and Payfare shall file within 20 days of the release of these reasons. Berkeley shall file within 10 days thereafter. There will be no reply submissions without leave of the court.
Justice S. Nakatsuru
Released: June 13, 2018