Court File and Parties
COURT FILE NO.: 1294/20 DATE: 2020-06-08 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
CRAWFORD PACKAGING INC. Plaintiff – and – ORAZIO DORATA, CANPACO INC. and ROBERT APPEL Defendants
COUNSEL: Michael A. Polvere and James R. Leslie, for the Plaintiff A. Irvin Schein and Carrington Hickey for the Defendants
HEARD: June 4, 2020
REASONS FOR JUDGMENT
Gray J.
[1] This is a motion for an interlocutory injunction in an employment context. It was heard by teleconference during the COVID-19 pandemic.
Background
[2] The plaintiff is engaged in the packaging business. The corporate defendant is also, to some extent, engaged in the packaging business. The territories in which they operate overlap to a degree.
[3] The defendant Dorata was employed for many years as a salesperson by the plaintiff. He was very successful, earning well over $200,000 per year. He serviced a number of large clients. One of them, Pepsi, was mentioned prominently in the evidence. It generates approximately $1.6 million per year in billings.
[4] Dorata was subject to an employment contract. The provisions of the contract that are primarily relevant in this case are as follows:
Non-Competition and Non-Solicitation During the period of his employment and extending for eighteen (18) months, thereafter, the Employee shall not, without the prior written consent of the President of CPI either directly, indirectly, individually, in partnership or in conjunction with any person as principal, agent, shareholder, guarantor or in any manner whatsoever, carry on, be employed or engaged with or connected to: (a) any company supplying goods or services substantially similar to those supplied by the Employer and located within any sales territory where the Employee worked. nor shall the Employee provide advice to any such companies that is substantially similar to advice he had provided while employed by CPI.
During the period of the Employee’s employment and extending for eighteen (18) months thereafter, the Employee shall not, without the prior written consent of the President of CPI either directly or indirectly, as an employee, a self-employed person, a consultant or independent contractor, solicit, attempt to serve or accept business from any person with whom the Employee dealt during the preceding eighteen (18) months of his employment, with respect to supply of goods or services that are substantially similar to those supplied by CPI.
During the period of his employment and extending for eighteen (18) months after any termination of that employment, the Employee shall not, directly or indirectly, solicit or attempt to solicit any employee of CPI with a view to having that employee resign his employment to accept employment with any other company, partnership or individual.
The Employee acknowledges that, by virtue of his position with CPI, he owes CPI a fiduciary duty, which survives the termination of his employment. The parties agree that the provisions of this agreement shall not be construed so as to limit in any way the scope of that duty.
The Employee agrees that these limitations on competition herein are reasonable, that he will not contest same, that CPI will be irreparably harmed and that it will not have an adequate remedy at law for the material breach or threatened breach by him of any one or more of the above covenants. The Employee therefore agrees that CPI shall be entitled in equity to any interim and/or interlocutory injunction to restrain such breach or threatened breach.
[5] Dorata tendered his resignation from the plaintiff in late January, 2020, and departed on February 7, 2020. He joined the corporate defendant in a management position.
[6] Prior to his departure from the plaintiff, Dorata participated in "transition" meetings with clients with whom he dealt, including Pepsi, at which another representative of the plaintiff was present. The intention was to ensure a smooth transition of the client's business to another person within the plaintiff's organization.
[7] The plaintiff alleges that, subsequent to his departure, Dorata has been engaged in trying to solicit business from its customers and in trying to encourage some of its employees to leave their employment with the plaintiff, contrary to the provisions of his employment agreement. The plaintiff also alleges that Dorata is in violation of the agreement simply by being employed by a competitor. That argument was not vigorously pursued during argument, and rightly so. As discussed later, a non-competition clause is normally unenforceable where a non-solicitation clause is adequate.
[8] The plaintiff also alleges that Dorata has not returned files and other property belonging to it.
[9] There is not a great deal of dispute about the essential facts, although there is considerable dispute as to inferences that should be drawn from the evidence.
[10] The plaintiff relies on three incidents in support of its position that Dorata has engaged in soliciting its clients.
[11] First, within a short period of time after his departure from the plaintiff's employ, Dorata had lunch with two representatives of Pepsi. Dorata says they are personal friends, and the lunch was to celebrate his birthday. Be that as it may, there is no dispute that no business from Pepsi has been assumed by the corporate defendant, and the plaintiff's relationship with Pepsi has not been adversely affected.
[12] Second, the plaintiff relies on an email sent to Dorata from one Chris Morgan. It is clearly in connection with an attempt by Dorata to solicit business. Mr. Morgan had been employed by Sysco Milton, a client of the plaintiff. However, it turned out that Mr. Morgan had left his employment with Sysco in mid-2019, and at the time the email was sent Mr. Morgan was employed by a company called Princess Auto, which is not a client of the plaintiff. Again, there is no evidence that the plaintiff has lost any of Sysco's business to the corporate defendant.
[13] Third, the plaintiff relies on an email Dorata sent to Basil Gonsalves at IKEA Canada, a client of the plaintiff, asking for the email address of "Peter". Dorata says "Peter" is Peter See, a friend of his, and he had misplaced Peter's email address. Once again, however, there is no evidence that the plaintiff has lost any of IKEA's business to the corporate defendant.
[14] As for the allegation that Dorata has not returned the plaintiff's property, the plaintiff relies on the fact that at an exit interview Dorata appeared jumpy and nervous when he was asked to return documents and files. The plaintiff also says an analysis of Dorata's computer disclosed a number of suspicious "gaps" in his email records. Furthermore, Dorata acknowledged making many notes during his employment, and they have not been provided. Dorata, for his part, says he has handed over everything in his possession. At the exit meeting, he was being cross-examined aggressively about the whereabouts of his files and documents, and he was understandably defensive. He denies deleting any emails. He says he went back and actually found some documents from nine or ten years ago, and they have been returned through counsel. He says any handwritten notes he made have been destroyed.
[15] With respect to the allegation that Dorata has attempted to poach the plaintiff's employees, reliance is placed on affidavits sworn by two of its employees, Heather Sullivan and Kerry Reidy.
[16] In her affidavit, Ms. Sullivan relates a conversation she says she had with Dorata before he left the plaintiff's employ. She says he told her he would be moving to a competitor, but he would not disclose who it was. She says he told her that he wanted her to move with him and be his "right hand" person. He said he would contact her once he was settled in his new position. On cross-examination on her affidavit, she agreed that there could not have been an actual offer of employment unless she knew the name of the prospective employer. Dorata never did contact her after he moved to the corporate defendant.
[17] As for Ms. Reidy, taking the most generous view of her evidence from the perspective of the plaintiff, I am not persuaded that it represents an offer of employment with the corporate defendant, and it is unlikely to be a serious suggestion that she leave the plaintiff's employ.
[18] Neither Ms. Sullivan nor Ms. Reidy has left the plaintiff's employ, and there is no evidence that anyone else has either.
Analysis
[19] The usual tests for an interlocutory injunction are set out in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, as follows:
(a) there must be a serious issue to be tried; (b) the moving party will suffer irreparable harm if the injunction is not granted; and (c) the balance of convenience favours the moving party.
[20] These tests are arguably modified somewhat in the case of an interlocutory injunction to enforce restrictive covenants in an employment contract.
[21] The court must have regard to certain general principles respecting the enforceability of such restrictive covenants. In essence, they are considered to be in restraint of trade and are prima facie unenforceable unless they are reasonably necessary for the protection of the employer's legitimate business interests. Ordinarily, a non-solicitation clause provides adequate protection, and only in exceptional cases will a non-competition clause be upheld as being reasonable: Elsley Estate v. J. G. Collins Insurance Agencies Ltd., [1978] 2 S.C.R. 916; and Lyons v. Multari (2000), 50 O.R. (3d) 526 (C.A.). The restrictive covenant must be reasonable as to geographic scope and duration: H.L. Staebler Co. v. Allan, 2008 ONCA 576, 92 O.R. (3d) 107. The covenant must be clear and unambiguous: Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157.
[22] In my view, paragraphs 5 and 6 of the agreement cannot make enforceable what is legally unenforceable. An employee cannot be “deemed” to be a fiduciary if, on any reasonable view of the evidence, he or she is not a fiduciary. Plaintiff’s rights, if any, flow from the agreement, and not from any concept of fiduciary obligations.
[23] If a covenant is unreasonable based on appropriate legal standards, a provision in the agreement that deems it to be reasonable is legally ineffective. Similarly, if the plaintiff cannot demonstrate irreparable harm, the agreement cannot deem the plaintiff to have done so.
[24] There is a bootstrap quality to these sorts of provisions. They are, in my view, ineffective.
[25] If the covenant is defective, it cannot be saved by severance or by otherwise rewriting the clause and it must be stuck down in its entirety: Shafron, supra.
[26] While these issues need not be determined in a final way on an interlocutory motion, they must be kept in mind in considering whether the first RJR MacDonald criterion has been satisfied.
[27] There is some divergence in the caselaw as to whether, in a case of this sort, the first criterion must be modified so that the moving party must show that it has a strong prima facie case, rather than showing that there is a serious issue to be tried. In Camino Modular Systems Inc. v. Kranidis, 2019 ONSC 7437, 58 C.C.E.L. (4th) 243, O'Brien J. stated at para. 15:
Instead of showing a serious issue to be tried at the first step of the test, the moving party must show that it has a strong prima facie case. This higher threshold is appropriate since the injunction is intended to place restrictions on a person's ability to engage in their chosen profession and to earn a livelihood.
[28] Other judges have inclined to the view that where a strong prima facie case has been shown, the second and third branches of the test are less significant, while if only a serious issue is raised, they will take on more weight: Polar Wireless Corp. v. Roberts, 2012 ONSC 4565, at paras. 22 - 25; Van Wagner Communications Co., Canada v. Penex Metropolis Ltd., at paras. 35 and 39; and Catalyst Capital Group Inc. v. Moyse, 2014 ONSC 6442, 122 O.R. (3d) 741, at paras. 74 and 75.
[29] My own view is that O'Brien J.'s rationale applies to the enforceability of a non-competition clause, but not to a non-solicitation clause. An unambiguous non-solicitation clause, properly restricted as to geographic scope and duration, does not prevent the former employee from engaging in his or her chosen profession and earning a living. It simply provides what the courts have recognized to be reasonable protection of the former employer's legitimate business interests. In such a case, the appropriate test is whether a serious issue is raised.
[30] In my view, this case can be dealt with on a more fundamental basis: what is requested is in reality a quia timet injunction. In such a case, a very high standard must be met. As stated by David Brown J. (as he then was) in Boehmer Box L.P. v. Ellis Packaging Ltd., at para.74:
An injunction is an extraordinary remedy; a quia timet injunction even more extraordinary. An injunction should not be used to remind parties about the obligations they owe to others under the law. An injunction should issue only to restrain a breach, or a reasonably apprehended imminent breach, of legal obligations.
[31] The authorities on quia timet injunctions are helpfully collected together and discussed by Slade J. in XY, Inc. v. IND Lifetech, Inc., 2008 BCSC 1215, 61 C.P.C. (6th) 148. At para. 66, he stated:
In an application for a quia timet injunction, the requirement for proof of irreparable harm is refined to account for the fact that the applicant, seeking an injunction in anticipation of future harm, has not yet suffered any harm. The applicant must lead clear evidence showing how much harm will occur and establishing a high probability that, without the injunction, the harm will occur imminently or in the near future.
[32] In this case, it is not disputed that no harm has occurred. The plaintiff has lost no business to the corporate defendant. None of its clients has departed. None of its employees has left their employment. Any future harm is purely speculative. Even taking the evidence at its highest from the perspective of the plaintiff, the very high threshold for a quia timet injunction has not been met. Whether the high threshold flows from a requirement to show a very strong prima facie case, or that there must be shown a very high likelihood of imminent irreparable harm, the result is the same.
[33] As for the issue of the return of the plaintiff's property, Dorata says he has returned everything he has. There is little evidence to the contrary. I am not persuaded that an injunction will accomplish anything more.
Disposition
[34] For the foregoing reasons, the motion for an interlocutory injunction is dismissed.
[35] The defendants shall have costs in the agreed-upon amount of $15,000, all-inclusive, payable within 30 days.
(Original signed by) Gray J.