COURT FILE NO. 132/20
DATE: 20210726
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
M & P Drug Mart Inc.
Applicant
– and –
Sydney (Alan) Norton and Whitehead Pharmacy Ltd.
Respondents
Mark Ross and Sharon Sam, for the applicant
Cara Valiquette and Audrey Doxtdator, for the respondent Sydney (Alan) Norton
Heard: April 22, 2021
APPLICATION UNDER rules 14.05(3)(d) and 14.05(3)(g) of the Rules of Civil Procedure
REASONS FOR DECISION
S.T. Bale J.
Overview
[1]. Alan Norton is a pharmacist. He was employed at Hometown IDA, a pharmacy in Huntsville. M & P Drug Mart Inc. is the owner of Hometown IDA.
[2]. On this application, M & P requests a declaration that the non-competition provisions of its employment agreement with Norton are valid and binding, and for an injunction to enforce those provisions.
Background facts
[3]. In late 2013, Wasim Daoud, a pharmacist located in Mississauga and the principal of M & P, learned that Hometown IDA was for sale. He made an offer to purchase the pharmacy which was accepted.
[4]. Daoud wanted to keep the existing employees. The plan was that their employment would be terminated by the selling owners, and that they would then be re-hired by Daoud under new employment contracts.
[5]. At the time of the sale, Norton had been working at the pharmacy for 33 years and was the pharmacy manager. Daoud asked if he was prepared to stay on, and Norton agreed, subject to the negotiation of acceptable terms of employment. The parties negotiated entirely by email and accordingly, there is a clear record of those negotiations.
[6]. On April 21, 2014, Daoud emailed a draft employment agreement to Norton. The draft agreement contained both non-solicitation and non-competition clauses. The proposed non-competition clause was for a period of five years, covering a 15-kilometre radius from Hometown IDA. Norton responded by saying, “I have received the Employment Agreement and will be seeking the advice of an employment specialist as I do have some concerns and will get back to you as soon as I can.”
[7]. On April 27, 2014, Norton wrote again to Daoud. His email contained extensive commentary on the terms included in Daoud’s first draft, including requests for revised or further terms. Norton began by saying, “Thank you for giving me the time to review the contract and get some advice. As I have never had a contract before it is a little intimidating. I will go through each of your proposals and give you my amendments and hopefully at the end we will both be happy!” With respect to the non-competition clause, Norton said, “I will not sign any agreement which limits where or how I may practice, if we part company.”
[8]. The following day, Daoud responded and said that he agreed with all the amendments proposed by Norton, except that he required a non-competition clause. Norton then responded by saying, “Thank-you for agreeing to my requests. I am still having a hard time with the non-competition clause.”
[9]. On April 29, 2014, Norton wrote to Daoud suggesting that he would agree to a non-competition clause limited to three years before age 60, but no non-competition clause after age 60. In the same email, he said that the lawyer he had consulted had said that anything longer than one year would not stand up in court. He said, “Hopefully we are making progress.”
[10]. The following day, Daoud wrote to Norton explaining why the non-competition clause was important to him and proposed a compromise: three years and 15 kilometres before Norton reached age 60, and one year and 15 kilometres after age 60. In response, Norton wrote expressing his satisfaction with the terms proposed by Daoud: “Thank you for your compromise. I think I can live with the new noncompetition clause as you stated it …Thank you again for your offer and I look forward to working with you. Cheers, Al.”
[11]. On May 6, 2014, Daoud revised the draft contract to incorporate the agreed-upon terms and emailed it to Norton. On May 8, Norton responded by saying: “Everything looks great. I am looking forward to working with you.” He signed the agreement and returned it to Daoud.
[12]. The sale of the pharmacy was completed in June 2014.
[13]. On July 23, 2020, Norton gave Daoud notice that he would be resigning from his position at the pharmacy on September 25, 2020.
[14]. Following his last day of work at Hometown IDA, Norton began working at Campus Trail, a newly opened pharmacy in Huntsville. Campus Trail is approximately three kilometres from Hometown IDA.
[15]. In October 2020, counsel for M & P wrote to Norton reminding him of the terms of his employment agreement. In response, counsel for Norton took the position that the non-competition provisions of the agreement were overbroad and therefore unenforceable.
Framework of analysis
[16]. The central issue on this application is whether the non-competition covenant in Alan Norton’s employment agreement with M & P Drug Mart Inc. is ambiguous or otherwise unreasonable and therefore unenforceable.
[17]. Covenants in restraint of trade are prima facie unenforceable, because they interfere with individual liberty and the exercise of trade. A restrictive covenant will only be upheld if it is reasonable in reference to the interests of the parties and the interests of the public. The party wishing to enforce a restrictive covenant has the onus of demonstrating that the covenant is reasonable as between the parties. The party trying to avoid enforcement has the onus of demonstrating that the covenant is not reasonable with respect to the public interest: Martin v. ConCreate USL Limited Partnership, 2013 ONCA 72, at paras. 49-50.
[18]. A more rigorous test is applied in determining the reasonableness of a restrictive covenant given in connection with an employment agreement, than one given in connection with the sale of a business. This is for two reasons. First, because, unlike with the sale of a business, the employer has not purchased goodwill from the employee that requires protection. Second, the sale of a business does not usually involve the imbalance of power that often exists in the negotiation of an employment contract: Martin, at paras. 52-53.
[19]. In the present case, Norton emphasizes the fact that the non-competition provisions in question are contained in an employment agreement rather than one for the sale of a business, and that therefore a high level of scrutiny is required. However, while this is true, it is evident from the email negotiations that he had significant bargaining power in his negotiations with Daoud, and that he used it to his advantage. Daoud saw him as essential and made significant concessions in order to keep him.
[20]. M & P emphasizes that Norton reviewed Daoud’s initial draft with an employment law specialist. Norton says that the consultation was only for 15 minutes; however, given the extensive commentary contained in his email to Daoud of April 27, 2014, it appears that all the bases were covered. M & P also relies upon the fact that the agreement contained an acknowledgment by Norton that the non-competition covenant was reasonable.
The factors to be considered
[21]. In Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344, at paras. 14-16, the court identified three factors to be considered in determining whether a restrictive covenant is reasonable:
• Whether the employer had a proprietary interest entitled to protection;
• Whether the scope of the prohibited activities, the length of the covenant or the geographical limits are overly broad; and
• Whether the covenant is reasonable with respect to the public interest.
[22]. However, before addressing those factors, the first question is whether the meaning of the restrictive covenant is ambiguous. An ambiguous restrictive covenant is prima facie unreasonable, because if the restrictions are unclear as to activity, time or geography, it will not be possible to demonstrate that they are reasonable: Martin, at para. 51.
Whether M & P Drug Mart Inc. had a proprietary interest entitled to protection
[23]. Norton does not dispute that M & P had “some form of proprietary business interest” to protect but argues that the non-solicitation clause in the agreement afforded sufficient protection, for that interest.
Whether the meaning of the restrictive covenant is ambiguous
Whether the scope of the prohibited activities is overly broad
[24]. In my view, in the present case, either the description of the prohibited activities is ambiguous, or the scope of the prohibited activities is overly broad. As a result, I find that the plaintiff has failed to demonstrate that the restrictive covenant is reasonable as between the parties.
[25]. The non-competition clause in issue provides as follows:
The Employee agrees that during the Employee's employment with the Company and during the one year period following the termination of the Employee's employment with the Company, for any reason whatsoever, the Employee shall not carry on, or be engaged in, concerned with, or interested in, directly or indirectly, any undertaking involving any business the same as, similar to or competitive with the business within a fifteen (15) kilometre radius of the business located at 10 Main Street East, Huntsville, Ontario P1H 2C9.
[26]. In IRIS The Visual Group Western Canada Inc. v. Park, 2017 BCCA 301, the non-competition clause in an optometrist’s employment contract prohibited her from “either directly or in partnership or in conjunction with any person or persons, firm, association, syndicate, company or corporation, directly or indirectly carry on or be engaged in any part thereof or be employed by any such person or persons, company or corporation carrying on, engaged in, interested in or concerned with a business that competes with OpCo or IRIS within 5 km of the Location.”
[27]. The court found that the clause failed the reasonableness test on two bases. With respect to ambiguity, the court questioned the nature of the connection required to compete “in conjunction with” another person and how one would determine whether an individual is “concerned with” a business that competed with IRIS. With respect to breadth, the court pointed out that the restriction would prevent the optometrist from engaging in a wide range of work unrelated to the practice of optometry and held that such a restriction could not be described as “no wider than reasonably required in order to afford adequate protection” to IRIS’ existing trade connections.
[28]. In Ceridian Dayforce Corporation v. Daniel Wright, 2017 ONSC 6763, the employer sought to enforce a non-competition clause against a software developer who had resigned. The clause restricted the employee, for a period of 12 months, from "directly or indirectly provid[ing] services, in any capacity ... to any person or entity that provides products or services or is otherwise engaged in any business competitive with the business carried on by the Company or any of its subsidiaries or affiliates at the time of his termination ..."
[29]. The Court held that a prohibition from providing services "in any capacity" to any business competitive with Ceridian was overly broad because it would prohibit the employee from working in areas not necessarily related to his employment duties as a software engineer. Also, the definition of competitive business was held to be ambiguous since, as the Court observed, it would be impossible at the time of hiring for the employee to know the number and kinds of other businesses the employer might have or acquire during the period of employment.
[30]. In Craig (c.o.b. Synergy Work Solutions) v. CEO Global Network Inc., 2019 ONSC 3589, the plaintiff was employed by CEO Global as an independent contractor for CEO Global, which engaged in executive mentoring, expert speaker programs, and executive coaching. The non-competition clause prohibited him, for a period of twelve months following termination, from acting “directly or indirectly … either as principal or agent, or as consultant, director or officer; carry on, be engaged or concerned; or interested in a business similar to the business carried on by [CEO Global].” The court found that the clause was ambiguous and overly broad. With respect to ambiguity, the court agreed with the finding in Magnetic Marketing Ltd. v. Print Three Franchising Corp. (1991), 1991 CanLII 763 (BC SC), 4 B.L.R. (2d) 8 (B.C.S.C.) that the use of the words “or a business similar thereto” introduces “a massive breadth of possible interpretations and hence introduces great uncertainty and ambiguity into the clause.”
[31]. There are also cases in which language similar to that in the present case has been held to be unambiguous.
[32]. In Dent Wizard (Canada) Ltd. v. Catastrophe Solutions International Inc., 2011 ONSC 1456, the court found similar language to be unambiguous. However, in that case, the business of the employer was motor vehicle dent removal, with the result that the prohibited activities were more narrowly defined than in the present case.
[33]. Similarly, in GDL Solutions v. Walker, 2012 ONSC 4378, where the issue was whether the reference to a “similar business” was vague, the business was IT infrastructure, outsourcing, managed services and service continuity and disaster recovery, again with the result that the prohibited activities were more narrowly defined. It is also of note that in that case, the covenant was given in the context of the sale of a business.
[34]. In ConCreate USL Limited Partnership, the court found similar language to be unambiguous. However, in that case, the business involved was concrete work on new and existing bridges, and “Concreate Business” was defined in an appendix to the agreement with significant particularity. In addition, as was the case in GDL Solutions, the covenant was given in the context of the sale of a business.
[35]. Had the prohibited activity in the present case been simply described as “working as a pharmacist at a pharmacy”, I would not have found the scope of the activities to be ambiguous or overly broad. However, as it is written, it is both.
[36]. With respect to ambiguity, what does it mean when it prohibits being indirectly concerned with an undertaking involving a business similar to Hometown Pharmacy? Does “being concerned with” refer only to working as a pharmacist or is it broader than that? Does “similar business” refer only to pharmacies? Could he work in the produce department of a supermarket that also includes a pharmacy? Does the prohibited competition relate only to prescriptions, or to all the myriad other things found in pharmacies - over-the-counter drugs, cosmetics, greeting cards, food, shaving cream, toothpaste, etc. which may also be found in various other retail premises, including convenience stores, grocery stores and big box stores? With respect to breadth, if the clause is to be interpreted so widely as to prevent Mr. Norton from having any interest in any other such business, or from doing work unrelated to the practice of pharmacy, it is clearly wider than reasonably necessary to afford adequate protection to M & P’s legitimate proprietary interests.
[37]. I am mindful of the admonition in The Catalyst Capital Group Inc. v. Moyse, 2014 ONSC 6442, at para. 59, that a restrictive covenant should not be lifted from an employment agreement and dissected, without regard to context and the business involved. However, because the business of pharmacies is so much wider than the provision of prescription drugs, and because the business of so many other retail stores overlaps so significantly with that of pharmacies, the context in the present case requires greater certainty. While one might argue that both parties knew that the prohibition was with respect to working as a pharmacist at a pharmacy, the question would then arise: “if that is what the parties meant, why was such a simple concept written using such obscure language?” It must also be borne in mind that the court is not permitted to rewrite a restrictive covenant in an employment agreement in order to reflect its own view of what the parties’ consensus ad idem might have been or what the court thinks is reasonable in the circumstances: Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, at para. 47.
[38]. Having found that the non-competition clause in Mr. Norton’s employment agreement with M & P Drug Mart Inc. is unreasonable, because it is ambiguous and the scope of the prohibited activities is too wide, it is not necessary for me to determine whether the covenant is reasonable with respect to the public interest.
Disposition
[39]. For the reasons given, the application is dismissed.
[40]. If the parties are unable to agree on costs, I will consider brief written argument provided that it is delivered to monica.mayer@ontario.ca, no later than August 31, 2021.
“S.T. Bale J.”
Released: July 26, 2021
REASONS FOR DECISION
S.T. Bale J.
Released: July 26, 2021