COURT FILE NO.: CV-22-74
DATE: 20220628
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Revel Realty Inc., Plaintiff
AND:
Chris Costabile, Chris Costabile Personal Real Estate Corporation, Nikki Vanderwal, Richard Rudlin, Amanda Corey, Dustin Low, Kyle Revelle, Pietro “Peter” Claudio Costabile, Defendants
BEFORE: The Honourable R. J. Harper
COUNSEL: Stephen Schwartz and Emily Quail, Counsel for the Plaintiffs
T. David Marshall and Rachel A. Sachs, Counsel for the Defendants
HEARD: June 3, 2022
ENDORSEMENT
Issues
[1] The Plaintiff, Revel Realty Inc., (Revel) seeks an interlocutory injunction restraining the Defendants from working together at the Agency Brantford pending the trial of this action or further order of this court.
[2] Revel also seeks a court order that the Defendants return Revel’s confidential proprietary information that is in their power, possession and control~~.~~
Background
[3] Revel Realty Inc. is an independent, non-franchise real estate company located in Southern Ontario. It has approximately 18 offices with 250 agents across Ontario. One of their offices was opened by Revel in Brantford, Ontario, in 2019.
[4] Until February 2022, all of the Defendants were independent contractors of Revel and agents at Revel’s Brantford office (Brantford Office).
[5] All Defendants, except for Nikki Vanderwal, signed agreements which contained certain restrictive covenants relating to confidentiality, non-recruit, non-solicitation and non-competition.
[6] The Agreements were not all the same. Chris Costabile’s agreement set out the spatial area of the noncompetition restrictive covenants as: “Brantford Peninsula”. All the other agreements of the Defendants who signed the agreement referred to the spatial area of the noncompetition restrictive covenants as: “Niagara Peninsula”.
The Historical Context
[7] Prior to the opening of the Brantford office, Chris was a real estate agent since approximately 2013. He started with RE/MAX Twin City out of Brantford and worked there as a sales agent for approximately three and a half years. He then switched to Century 21 Professional Group also working out of Brantford.
[8] In 2019 Chris joined Revel and remained there until 2019. Chris had entered discussions with the founder of Revel, Ryan Serravalle, that charted a path for Revel to open its first office outside of the Niagara Region.
[9] Revel and Chris entered into an agreement that was drafted by Revel’s lawyers on January 25, 2019. The agreement called for Chris to be the Independent Contractor/Head Coach of the new Brantford office of Revel. In or around that same time, Chris resigned from the position he held at the Century 21 Group.
[10] Chris recruited all of the other Defendants in this action to become real estate agents at the Revel Brantford Brokerage. According to Chris, Revel did not play a role in the day-to-day operation of Revel Brantford. The duty to manage the office and manage all the agents fell to Chris.
[11] The Agreements that seven of the Defendants signed with Revel contained almost identical clauses with respect to the restrictive covenants that were in Chris’ agreement relative to recruiting, soliciting and competing, except for certain differences such as the length of the restrictions and the spatial component. The spatial limitation of the other Defendants all referred to the Niagara Peninsula. Chris’ spatial restriction was the Brantford Peninsula.
[12] There is no such thing as the Brantford Peninsula. There is no claim that the other Defendants breached any restrictive covenants relative to the Niagara Peninsula. Revel submits that regardless of the wording of the spatial restriction in the agreements, everyone knew that the restrictions applied to Brantford. I do not accept this submission of the part of Revel.
[13] Restrictive covenants that deal with employer/employee relationships are presumptively unenforceable. If the covenants fall within an exceptional class of covenants that would be considered to be reasonable, they must be clear and unambiguous. I find that the covenants in all of the relevant agreements are not clear and unambiguous.
[14] In addition to the spatial ambiguity, the length of the restrictions are unreasonable in the circumstances of this case.
[15] As part of his acting as a real estate agent independent contractor, Chris incorporated a company called Chris Costabile Personal Real Estate Corporation. This was done for tax purposes.
[16] In 2019, Revel opened the office in Brantford. Chris started that office from scratch. He was the first agent. In his cross-examination, he stated that his goal was to create an opportunity for other agents to join him at the Revel Brantford office. He admitted that he was successful at that goal.
[17] When he started Revel Brantford, that office did not have any appreciable market share in Brantford. By the end of 2021, Revel Brantford office had approximately 26 sales agents plus another team of agents that were brought in by Revel. The impact of the other team being brought into Revel Brantford by the owners of the Revel Brokerage, the Serravalle’s, was severe. Revel did not inform or consult with Chris as Head Coach of the Brantford Office, nor did they provide prior knowledge of this to the other Defendants. I will expand on this later in these reasons.
[18] Chris was involved in what Revel had set up as a mentorship structure within that company. That structure was a feature of Revel that included mentor educating and, otherwise, assisting new agents. These mentors were referred to as: “Head Coaches.” The mentors received a portion of the commission that would otherwise be due to Revel in exchange for their investment in the newer real estate agents.
[19] The Head Coach is the manager of the office and its most senior position. According to Revel, the Head Coaches are promoted internally and externally as the “face” of an office.
[20] Between 2019 and 2021, the following Defendants joined Revel:
Richard Rudlin (Rudlin),
Nikki Vanderwal (Vanderwal),
Dustin Low (Low),
Pietro Claudio Costabile (P Costabile),
Kyle Revelle (Revelle),
Amanda Corey (Corey).
[21] The above noted Defendants all signed an agreement that contained the above referred to restrictive covenants, except for Vanderwal. Despite Vanderwal not signing the agreement, she was aware of the terms and restrictions.
[22] The restrictive covenants in the agreements, other than the agreement signed by Chris, do not prevent the Defendants from working in the real estate industry. Revel submits that the restrictive covenants are very narrowly focused. They purportedly restrict these agents from working at or opening a brokerage together in a defined spatial region that would put them in competition with Revel for a period of 3 years.
[23] Except for the Chris agreement, the spatial region of restriction is stated in the written agreement to be the Niagara Peninsula. There was never an amendment to the original agreements. Revel argues that everyone knew the restrictions applied to Brantford. It is Brantford where these agents were going to be working.
[24] However, there is evidence that at least some of the Defendants contemplated working in an area larger than Brantford City. This will also be expanded upon later in these Reasons.
[25] The following is an excerpt from the Independent Contractor/Head Coach Agreement signed by Chris on January 25, 2019:
8.7 Non-solicitation
The Realtor/Head Coach shall not, during the term of this Agreement and for a period of five (5) years immediately following termination of this Agreement, either directly or indirectly, call on, solicit, or take away, or attempt to call on, solicit, or take away, any of the Revel realtors of the Brokerage on whom the Realtor/Head Coach called or became acquainted with during the term of this Agreement, either for his/her own benefit, or for the benefit of any other person,
firm, corporation or organization, or for the benefit of the Brokerage.
8.8 Non- recruit
The Realtor/Head Coach shall not, during the term of this Agreement and for a period of five (5) years immediately following termination of this agreement, either directly or indirectly, solicit or recruit any of the Brokerage's employees, realtors, sales representatives, registrants or Brokers to leave the Brokerage even if the Realtor/Head Coach initially recruited, mentored or was connected with the individual so being recruited, without first having obtained the written consent of the Brokerage, which consent may be arbitrarily withheld.
8.9 Non-Competition
The Realtor/Head Coach shall not, within the Brantford Peninsula either during the term of this Agreement or for three (3) years from the date of termination hereof, directly, indirectly, in partnership or in conjunction with any person or persons affiliated with Revel Realty Inc., including realtors’ sales representatives, brokers, other than their spouses of the current location. Or to start a new brokerage without prior written consent of the Brokerage which consent may be arbitrarily withheld. Realtors/Head Coach may choose to open their own brokerage with their spouse/living partner but will have no affiliation or partnership with any realtors, brokers, sales representatives or employees who are working with Revel Realty Inc. or have worked under the Revel Realty brand within the three (3) year time period.
[26] According to Revel, in January or February 2021, Chris’s fiancé, Courtney Costabile (Courtney), started to plan on opening a branch of the real estate brokerage called: the “Agency” (Agency), in Brantford, Ontario. The Agency would be in direct competition to Revel in Brantford.
[27] Revel contends that Chris participated in the planning to open the Agency in or about January 2022. Revel refers to the following evidence to support this contention:
a) On January 26, 2022, Chris had a calendar meeting entitled “Call w/ Steve
Bailey”, a principal of the Agency Kitchener.
b) On February 2, 2022, Courtney emailed Chris about a bonus structure stating:
“I won’t be using the spread sheet like we do now when we are with “The
Agency”.
c) On February 9, 2022, Chris attended and invited agents from the Brantford
Office to a recruitment meeting hosted by the Agency.
d) On February 13, 2022, Chris approved his new biography for the Agency.
e) On February 15, 2022, Chris messaged Erin McIntyre, an
agent at the Brantford Office, that he was “signing officially” with the Agency
and that they were going to “get moving on ads, orientation etc.”; and,
f) In early February 2022, Courtney requested recommendations for a
contractor, stating “Doing Reno’s to our office, decently big job” and made
inquiries about new signage for the Brantford Office.
[28] Revel submits that Chris was entitled to leave Revel and work with Courtney, however, to hit the ground running with a new brokerage, he needed a team to assist him. He, therefore, recruited and solicited the other Defendants to join him and his wife at the new Agency Brokerage in direct competition with Revel Brantford.
[29] Chris was very successful at Revel Brantford. In 2021, he earned over a million dollars in commissions, and he was projected to make over $1.8 million dollars in 2022. Chris relied on having a team to support his volume of real estate deals. Conversely, it was an advantage to the other agents to have a very successful senior manager and coach to gain listings and other referrals that would advance their career as real estate agents.
Recruitment of Revel Agents by Chris
[30] Chris denied that in or about February 2022, while still part of senior management at Revel, he directly and indirectly recruited agents at the Brantford Office to leave Revel and join the Agency Brantford.
[31] Despite the denials of Chris, I find that there were a number of meetings, text and email messages and answers, shown in the transcripts of the cross-examinations of the Defendants, that Chris participated in the recruitment. Chris was the main reason the Revel agents that he brought on board decided to leave Revel and join him in Brantford at the new Agency brokerage that was being set up in direct competition with Revel.
[32] On February 9, 2022, there was a meeting held at the Agency Kitchener Office. That meeting was attended by the Defendants: Corey, Rudlin, Vanderwal, McIntyre, and Sandra Rae, as well as Chris’ fiancé, Courtney, and his personal assistant, Jacqui Wright.
[33] Chris personally invited one of the agents, McIntyre, to attend that meeting.
[34] Chris admitted that the purpose of the meeting was to allow the attendees to hear “the pitch of what the Agency offered”.
[35] The Revel agent, Defendant Corey, who attended the meeting held on February 9, 2022, knew that Chris was on board with his fiancé, Courtney, setting up the Agency Brantford. As a result, she felt that it would be good for her to join on.
[36] Emails between Corey and the Agency on February 10, 2022, confirm that Corey was joining the Agency Brantford. Corey’s email stated: “I’m super excited to come on board – I think it’s a great move. We are going to take Brantford, Norfolk and all the surrounding areas by storm”.
[37] In my view, this is evidence that although Chris did not directly solicit Corey to join the new Agency Brantford, he acted in a manner that indirectly influenced Corey and others in their wish to join the Agency.
[38] I also find that this is evidence that there were expectations the agents willing to move from Revel to the Agency were going to work in a spatial area far greater than the confines of the City of Brantford.
[39] On that same day, Chris sent a text to McIntyre that attached a picture of Courtney and Corey. In this picture, Corey is wearing an Agency hat and the caption in the picture states: “she is with us”, raising a glass next to Courtney.
[40] In addition to the above mentioned, I find that there are multiple email and text streams between Courtney, Chris and all of the other Defendants that demonstrate that Chris was part of the planning and carried out the recruitment of the Defendants to join the Agency Brantford Office.
[41] The founder of Revel, Ryan Serravalle, asked Chris on February 23, 2022, if he was going to leave Revel. Chris denied that he was. At this meeting, Chris offered to step down as Head Coach but to stay on as an agent with Revel Brantford. Revel agreed to this.
[42] On February 25, 2022, Chris drafted a resignation letter that Chris claimed that his lawyer had reviewed. That draft contained the following:
Revel Realty Inc. Will [sic] not pursue any non-solicitation, non-recruitment terms and conditions”
[43] Revel submits that the fact that Chris drafted his resignation letter in this manner demonstrates Chris was aware that he was exposed to liability since he had been recruiting agents to compete with Revel. I agree with that submission. However, that only allows for the conclusion that Chris was aware that he was exposed to liability and not that the restrictive covenants would be enforced by the courts.
[44] On February 26, 2022, Chris signed a resignation letter as Head Coach at Revel Brantford. The clause preventing the enforcement of the restrictive covenants had been removed. Chris signed the resignation letter without that clause.
[45] On February 27, 2022, Nicki Serravalle, Ryan’s wife, sent an email to Revel staff advising them that Chris was stepping down as Head Coach.
[46] On February 28, 2022, Chris resigned as an agent at the Brantford Office of Revel. That same day, six other agents, Rudlin, Vanderwal, Corey, Low, Peter and Revelle, resigned from the Brantford Revel Office. In addition to resigning from Revel, all of the Defendants announced that they were joining the Agency Brantford. The agency office in Brantford would be less than a 3-minute walk from the Revel Brantford Office.
Context for Discontent: Restricting Competition from Within; The Clean Hands Doctrine
[47] In determining the reasonableness of the restricted activity, and the length of the restrictions, it is submitted by the Defendants that the court must look at the complete context.
[48] Injunctive relief is equitable relief. In order for a party to avail themselves of equitable relief, they must come to court with clean hands. I am guided by the approach taken by Carole J. Brown J. in Diversey Inc. v. Virox Holding Inc. et al., 2012 ONSC 6822. In that case, Diversey argued the principle that those who come to court seeking equity must do equity. Carole J. Brown J. accepted that doctrine as it related to the conduct of the parties relative to the agreements that they had entered into. In Diversey, the court found that the Defendants had breached the very contract they sought to enforce and that they did not come to court with clean hands.
[49] I adopt the approach in Diversey to the case before me. I find that Revel breached the agreement with Chris by not seeking his prior approval to have the Broddick Team come on board and open a new office in Brantford and later in Norfolk. They are now attempting to enforce the restrictive covenants portion of the agreement against the Defendant, Chris, and the new agency he works for. The Plaintiff submits that it is reasonable to enforce this narrow restriction on all of the Defendants. According to the Plaintiff, they merely cannot compete with Revel in Brantford. I do not agree for the reasons set out below.
[50] In this case, the conduct of Revel in the fall of 2021 raises concern with respect to the reasonableness of the restricted activity, and the timeline for the restrictions. I find that Revel conducted themselves in a manner that placed the Defendants in a position of disadvantage relative to their ability to compete in their chosen occupation.
[51] It is from that disadvantageous position that I view the restrictive covenants to be unenforceable. Revel set out on a course of conduct that limited the ability of the Defendants to compete. Revel did this from within. They took on a former competitor who already had a large share of the Brantford real estate market without any input or even knowledge of Chris and the other Defendants. Revel then gave the new Broddick team the right to open a new office in Brantford and Norfolk. They were expanding their market share while, at the same time, insisting that the Defendants were not allowed to compete with them.
The Revel Expansion with the Broddick Team
[52] In or about September 2021, Chris was advised by Revel owner, Ryan Serravalle, that he had been approached by a real estate agent in Brantford, Kate Broddick. Ms. Broddick expressed to Ryan that she wanted to join Revel in Brantford. However, Ms. Broddick wanted to open another office instead of joining the office that Chris had started and grew over the two-year period he started with Revel Brantford.
[53] In spite of the fact that the Head Coach agreement with Chris that provided that Chris had to consent to the opening of any other office, Ryan told Chris that he was going ahead with the plan despite Chris and the other agents at the Brantford offices objections. According to Chris, Ryan was very aggressive and told him that he could either accept this arrangement or he would go around him and do it anyway.
[54] The concern of Chris and the other Defendants was that the Broddick team was very aggressive and successful in the Brantford area already. According to Chris, if you work in a brokerage with a team like hers, you become invisible, especially as the office’s resources are diverted from you and your other independent colleagues to the “star team”. This is part of what I find to be Revel restricting the Defendants’ ability to conduct their trade from within.
[55] Chris gave evidence that he immediately lost three agents on his Brantford team when the Broddick news came out. He also stated the other agents who were willing to come to his Revel office were no longer interested in working at Revel.
[56] Chris and the other Defendants felt that Revel was choosing their own pursuit of profits at the expense of everything that he and Revel Brantford had accomplished over the two and a half years Revel Brantford had operated.
[57] Chris approached Ryan and sought his approval to let him open a Revel Office in Norfolk. Ryan to told him to “put the brakes” on that idea. Shortly after Revel announced that the Kate Broddick team would be opening up yet another location and it would be in Norfolk.
[58] At a meeting in the Brantford Office on October 5, 2021, Ryan and his wife announced that neither Chris nor his wife, Courtney, would be the persons to go to for guidance and assistance. I find that Revel was conducting itself in a manner that was squeezing Chris and the other Defendants and creating limiting pathways for them to conduct their work.
[59] I find that alternate plans of Chris, his wife, Courtney, and the other Defendants, came as a result of Revel’s conduct in the fall of 2021.
The Law Interlocutory Injunctions and Restrictive Covenants
[60] In Parekh et al v. Schecter et al, 2022 ONSC 302, Justice Mohan Sharma reviewed the legal principles involving interlocutory injunctions and restrictive covenants. I adopt his reasoning and legal principles that he outlined commencing at para. 30:
Legal Principles
[30] Injunctions are discretionary, equitable relief. They may be granted where the moving party establishes:
(1) there is a serious issue to be tried, or in the case of enforcement of a non-competition clause, there is a strong prima facie case;
(2) the moving party will suffer irreparable harm if the injunction is not granted; and
(3) the balance of convenience favours granting the injunction, based on an assessment of which of the parties will suffer the greater harm from the granting or refusal of the injunction pending the decision on the merits: RJR-Macdonald Inc. v Canada (AG), 1994 CanLII 117 (SCC), [1994] 1 SCR 311 at p 334 (“RJR”); R v. Canadian Broadcasting Corp., 2018 SCC 5 at para 17 (“CBC”).
[31] With respect to the first prong, the responding party argues that the more stringent standard of a strong prima facie case applies when the moving party is seeking enforcement of a non-competition clause. They rely upon Boehmer Box L.P. v. Ellis Packaging Limited, 2007 CanLII 14619 at para 39; Phoenix Restorations Ltd. v. Brownlee, 2010 BCSC 1749 at para 24 (“Brownlee”); and Hired Resources Ltd. v Lomond, 2019 SKQB 195 at para 13 (“Lomond”). The plaintiff has conceded this point.
[32] What the strong prima facie case standard means is “that upon a preliminary review of the case, the application judge must be satisfied that there is a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice.” CBC, supra at para 17.
[33] Where a strong prima facie case is shown, the latter branches of the test, while still relevant are of lesser importance: Van Wagner Communications Company, Canada v. Penex Metropolis Ltd., 2008 CanLII 1427 (ON SC) at para 39 (“Van Wagner Communications”).
[34] A strong prima facie case is required when considering a non-competition clause because it limits a person’s ability to engage in their chosen profession (Jet Prink Ink v. Cohen, [1999] O.J. No. 2864 at para 11). However, the plaintiffs need only meet the lesser test of “a serious issue to be tried” in assessing whether Ira has breached the Confidential Information Clause because it is not a restrictive covenant (see Quick Pass Master Tutorial School Ltd. v. Zhao, 2018 BCSC 683 at para 30). An unambiguous non-solicitation clause restricted as to geographic scope and duration does not prevent a person’s ability to engage in their chosen profession, and therefore, the appropriate test is whether a serious issue is raised. (Crawford Packaging Inc. v. Dorata, 2020 ONSC 3555 at para 29).
[35] The following legal principles govern the enforcement of restrictive covenants in a contract of employment:
a. Covenants in restraint of trade are contrary to the public policy in favour of trade, but certain such covenants will be upheld if they are found to be reasonable in the circumstances. Covenants in an employment contract will be subject to stricter scrutiny as compared to ones which formed part of the consideration of a sale of a business. Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009 1 SCR 157 (“Shafron”).
b. An ambiguous restrictive covenant will be prima facie unenforceable (e.g., with respect to activity, time or geography), because the party seeking to enforce it will be unable to demonstrate it is reasonable in the face of the ambiguity. Shafron, paras 27 and 43.
c. Principles to apply when assessing whether a restrictive covenant in a contract of employment is unreasonable, and therefore, unenforceable were set out in Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344 at para 16:
I. Is the covenant “reasonable between the parties and with reference to the public interest” (see J.G. Collins Insurance Agencies Ltd. v. Elsley Estate, 1978 CanLII 7 (SCC), [1978] 2 SCR 916 at p 923 (“Elsley”).
II. The balance is between the public interest in maintaining open competition and discouraging restraints on trade on the one hand, and the right of an employer to protect its trade secrets, confidential information and trade secrets, on the other.
III. The validity of a restrictive covenant can be determined only upon an overall assessment of the clause, the agreement within which it is found, and all the surrounding circumstances (see Elsley at 924).
IV. With this context, three factors to consider are: (1) did the employer have a proprietary interest entitled to protection; (2) are the temporal or special 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?
Position of the Defendants
[61] The restrictive covenants in any of the agreements are not enforceable.
a. The covenants cannot be considered to be reasonable as they are spatially vague and ambiguous, and they are temporally void for public policy.
b. The covenants restrict the Defendants from being able to earn a living.
[62] The Defendants contend that Revel conducted itself in a manner that amounted to a constructive breach of the agreements entered into by the Defendants. As a result, even if the restrictive covenants were enforceable, they were not operative when the Defendants left the Revel Office in Brantford.
[63] In the alternative, the Defendants argue that the Plaintiff has not come to court with clean hands. They conducted themselves in a manner that has restricted the Defendants’ ability to earn a living by not complying with the terms of the agreements, and they now want to enforce the agreements they did not comply with.
The Spatial Ambiguity
[64] The Defendants submit that the agreement refers to territories that are vague and confusing. They submit that this court should be guided by the case of Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 S.C.R. 157. In that case, the parties entered into agreements that contained restrictive covenants. However, the restrictions were to apply to: “Metropolitan Vancouver”.
[65] In Shafron the Supreme Court of Canada found that the term “Metropolitan City of Vancouver” was uncertain and ambiguous. They also found, on the record in that case, that there was nothing that demonstrated that there was a mutual understanding of the parties, at the time they entered into the contract, as to what geographic area the restrictive covenant covered, and it was inappropriate for the Court of Appeal to re‑write the covenant.
[66] The Supreme Court went on to state that restrictive covenants generally are restraints of trade and contrary to public policy. Freedom to contract, however, requires an exception for reasonable restrictive covenants. Normally, the reasonableness of a covenant will be determined by its geographic and temporal scope as well as the extent of the activity sought to be prohibited. Reasonableness cannot be determined if a covenant is ambiguous in the sense that what is prohibited is not clear as to activity, time, or geography. An ambiguous restrictive covenant is, by definition, prima facie unreasonable and unenforceable.
[67] In this case, the contract between Chris and Revel is worded differently than the contract between Revel and the other 7 Defendants who signed the contract. Chris’ contract refers to the restrictions applying to the “Brantford Peninsula.” It is conceded that there is no such geographical area known as the “Brantford Peninsula.” There is the “City of Brantford” and “Brantford County”. In addition, there are surrounding areas and cities that are often referred to as “Greater Branford”. None of the possible surrounding areas are referred to in the Chris agreement, and most certainly not in the other Defendants’ agreements. The latter only refers to the Niagara Peninsula.
[68] Revel argues that, unlike Shafron, there is other evidence that demonstrates that there was a mutual understanding that Chris and Revel knew at the time of entering into the contract, that the restrictive covenants applied to “Brantford”. Chris was asked in cross-examination what he felt “Brantford Peninsula” referred to, and he responded: “Brantford”.
[69] The contracts of the 7 Defendants who signed contracts made no reference to Brantford. These contracts referred to Niagara Peninsula. Counsel for Revel conceded that those Defendants were not asked what geographical area they thought the restrictive covenants referred to. He submitted that, in considering the evidence as a whole, it is clear that all of the Defendants knew the restrictive covenants applied to Brantford.
[70] Shafron comments on the reasonableness of a restrictive covenant as being linked to its clarity. Commencing at para 26:
[26] As a general rule, according to Dickson J. in Elsley, at p. 925, the geographic coverage of the covenant and the period of time in which it is effective have been used to determine whether a restrictive covenant is reasonable. The extent of the activity sought to be prohibited is also relevant.
[27] However, for a determination of reasonableness to be made, the terms of the restrictive covenant must be unambiguous. The reasonableness of a covenant cannot be determined without first establishing the meaning of the covenant. The onus is on the party seeking to enforce the restrictive covenant to show the reasonableness of its terms. An ambiguous restrictive covenant will be prima facie unenforceable because the party seeking enforcement will be unable to demonstrate reasonableness in the face of an ambiguity. As stated at the outset, the main difficulty that arises in this case is the ambiguity of the geographical restriction contained in the covenant. However, before turning to the case at hand, I will discuss the doctrine of severance as it applies to restrictive covenants in employment contracts.
[71] The Supreme Court in Shafron also made it clear as to how such restrictive covenant cases should be approached:
[43] 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. This case is different because of the added issue of ambiguity. As indicated, 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.
[72] In this case, the Defendants are not arguing that the restrictive covenants are not clear as it relates to the activity and the time of the restrictions. They argue that the geographic area is ambiguous, and the time frame and nature of the restrictions are not reasonable. The Defendants argue that the activity amounts to an inability for the Defendants to earn a living.
[73] I find that the agreements that were drafted by Revel taken together are ambiguous. The seven Defendant agreements appeared to be a “cut and paste” from other contracts that pertained to restrictive covenants in the Niagara Peninsula. Other than asking Chris in cross-examination what he thought Brantford Peninsula meant, there was no attempt to even question the remaining Defendants on what they thought the spatial limitations were.
[74] However, I find that the Chris agreement is also ambiguous. Although Chris stated that he thought Branford Peninsula referred to Brantford. Like in Shafron, there was no evidence that clearly defined the parameters of “Brantford”.
[75] I find that as a result of the ambiguities, the restrictive covenants are presumptively unenforceable.
Application of the Law of Injunctive Relief and Restrictive Covenants
[76] In Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344, the court outlined the principles to take into consideration relative to enforcement of restrictive covenants, commencing at para. 16:
[16] This court also recently discussed the governing principles that are applicable when considering whether a restrictive covenant in a contract of employment is unreasonable and therefore unenforceable in H.L. Staebler Co. v. Allan (2008), 2008 ONCA 576, 92 O.R. (3d) 107, [2008] O.J. No 3048 (C.A.). They can be summarized as follows:
-- To be enforceable, the covenant must be "reasonable between the parties and with reference to the public interest" (Elsley, at p. 923 S.C.R.). [page77 ]
-- 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" (Elsley, at p. 924 S.C.R.).
-- 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?
[77] In the case before me, I find that there are no proprietary interests of the Plaintiff to be protected. The Plaintiff submits that its extensive educational/mentor model is a prime example of a proprietary interest to be protected. I do not agree. Many companies have such models as part of best practices and common-sense business activity.
[78] I have already found that the spatial restrictions are ambiguous. In addition, I find that the temporal limitations are not reasonable. Five- and three-year restrictions are excessive. The excessive nature and their unreasonable character is exacerbated by the fact that the Defendants’ ability to carry on their trade had already been restricted by the actions of the Plaintiff in bringing on board the Broddick team without the knowledge and consultation of any of the Defendants.
[79] I find that if any protection is needed, it would be relative to a Google Business Profile that may have been set up. However, I accept the evidence of Chris that after he left Revel, he made every effort to ensure the Revel Profile was transferred back to Revel.
[80] With respect to the balance 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 in this case the balance leans to the publics interest in maintaining open competition and discouraging restraint on trade.
[81] There is no evidence, on the balance of probabilities, that there are any trade secrets of confidential information and trade connections to be protected. A substantial part of the trade connections in real estate are personal to the agents. The evidence before me demonstrates that Chris wanted and needed agents to work with him that he could trust, and the other Defendant agents needed Chris’ abilities as a successful agent in order to get referrals to assist with growing and maintaining their business. There is no evidence that the growth of the Defendants’ business opportunities came as a result of their involvement with Revel
RJR MacDonald test:
- Strong Prima Facie Case?
[82] Has the Plaintiff shown a strong prima facie case? I find that they have not. The spatial restrictions are ambiguous and not enforceable. I find that the times set out for the restrictions are unreasonable and would result in a serious Impediment for the Defendants ability to earn a living.
- Irreparable Harm?
[83] The Plaintiffs have not shown that denying an interlocutory injunction would result in irreparable. I accept the evidence presented by the defendants that damages, if any, can be calculated. I accept the uncontradicted expert evidence advanced by the Defendants and the methodology adopted by the expert to calculate those damages.
- Which party will suffer the greater harm if the injunction is granted or refused?
[84] I find that the Defendants would suffer the greater harm if the injunction is granted. Revel created an atmosphere within Revel that has restricted the Defendants’ ability to compete. If the injunction were to be granted, there would be very limited ability to compete outside of Revel. The atmosphere is already toxic as a result of the Broddick transactions. Most, if not all, of the Defendants are from Brantford, and they would be forced to start from scratch to develop any contacts outside of Brantford.
[83] I have already found that the spatial limitation is ambiguous, and that compounds the problem for the Defendants as it is not clear if they could even compete in Brantford County, Norfolk County, and the surrounding area sometimes known as Greater Brantford.
[84] As a result of the above reasons, the Motion of Revel is Dismissed.
[85] If the parties are not able to reach an agreement as to costs, they may provide written submissions within 30 days. The submissions shall be limited to 3 pages. Bills of Costs shall accompany the submissions.
Justice R. J. Harper
Date: June 28, 2022