Non-Competition and Non-Solicitation Restrictive Covenants Unenforceable Against Consultants

Taylor Janis’ own Whitney Manfro defends three Consultants in a landmark case, securing a significant victory against allegations of breaching restrictive covenants. This case highlights the importance of carefully drafted non-competition agreements and the courts’ approach to interpreting such contracts.

The decision underscores the need for balance and reasonableness in restrictive covenants, particularly in employment-like relationships.

Overview: NL Fisher Supervision & Engineering Ltd. Boettger, 2024 ABCJ 225

• Taylor Janis was successful in defending three Consultants and their respective corporations against allegations that they had breached restrictive covenants contained within a Confidentiality and Non-Competition Agreement (“CNC Agreement”).
• TJ was successful in arguing the CNC Agreements should be interpreted using the more rigorous level of scrutiny that is applied within an employment relationship, by putting forth evidence demonstrating an imbalance of bargaining power and the absence of payment for goodwill upon the sale of a business;
• TJ also put forward evidence demonstrating the drafted restrictions in terms of time, geography and scope, were overly broad, unreasonable and ambiguous;
• The Alberta Court of Justice ruled that the non-competition and non-solicitation clauses found within the CNC Agreements were ambiguous and unreasonable, and therefore unenforceable.

Why This Decision Is Important

The decision is notable for a variety of reasons:

• It provides a comprehensive review of the law on restrictive covenants, specifically non-competition and non-solicitation agreements;
  
• It confirms the relationship between the parties will determine who the Court will assess restrictive covenant terms, by confirming that in the absence of payment for goodwill and where there is an imbalance of power, even Contactor Agreements will be subject to the same rigorous scrutiny as that found in an employment context;
  
• It lists an important set of indica that signal an imbalance of bargaining power; and,
  
• It applies the principles of ambiguity and reasonableness to find that the CNC agreements and a contemplated breach of contract damages clause in this case were unenforceable.
  

Case Details

• The Trial decision of this case involved 5 separate actions that were ultimately heard together;
• Multiple issues were addressed at trial, however, a main concern to be determined was whether the Defendant individual consultants and/or their respective corporations had breached the CNC agreements by performing work for another engineering firm following their conclusion of engineering services to NL Fisher;
• The Court determined that sections 5.03 and 5.04 of the CNC Agreements in dispute were ambiguous and unreasonable, and therefore unenforceable as it the Consultants could not determine the extent of the proposed restrictions as they were not provided with a list of all NL Fisher clients they were restricted from contacting.
• NL Fisher could also not explain why it had increased its restricted period from six months to two years in the CNC Agreements, and therefore could not establish that the increased restriction was reasonable or necessary.
• Further, various wording contained within the conversion clause was vague and ambiguous. The word “term” rather than “terms” provided ambiguity as to which term needed to be breached in order to result in the conversion fee clause being applied. The conversion fee clause also contained a further undefined term, such as “Total Actual Invoiced Amount”, which made it unclear as to what invoices were to be used to calculate the alleged damages owing within this clause, whether it included invoices to NL Fisher or to the new engineering firm, among other interpretations.

Outcome

The Alberta Court of Justice dismissed NL Fisher’s claims against the Defendant consultants and their corporations in their entirety and awarded the Consultants the entirety of their claimed unpaid invoices without set-off.

Key Takeaways

• The relationship between the parties will be assessed in determining the proper scrutiny to be applied to the interpretation of restrictive covenants;
• Restrictive covenants must be drafted clearly and be no more restrictive than is necessary for the protection of the company’s proprietary interests in terms of time, geography and scope.

References

NL Fisher Supervision & Engineering Ltd. v Boettger, 2024 ABCJ 225 (CanLII)
https://canlii.ca/t/k7mgg

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