Legal Brief for March, 2013

Departing Employees - Beware

Employers often require their senior employees to sign a formal employment agreement.  These agreements will usually contain clauses which are known as non-competition provisions.  These clauses are intended to protect the employer in case the employee leaves the business and opens up their own business in competition with the employer.  Non-competition agreements generally have two aspects to the restrictions that are imposed - a geographic area that the employee is not to be competing in (e.g. - "the City of Edmonton and within a 100 km radius") and a length of time that the prohibition is to exist (e.g. - " a period of two years").  These provisions are often hard to enforce against ex-employees, as the employer must prove that the restrictions are "reasonable".  If there is any uncertainty in the wording of the provisions or unreasonableness in the area or length of time, a Court will rule that the clauses are "unenforceable", and the ex-employee is then free to carry on with their competing business.

There is however a separate legal duty that can be imposed on ex-employees independent of whether they are subject to a non-competition agreement.  This is known as a "fiduciary duty", and it is part of the "common law" that is applicable to employment law relationships, regardless of whether the parties are aware of it or not.  The essence of a fiduciary duty is that an ex-employee is not allowed to unfairly compete with his or her ex-employee.  There are a variety of aspects to what constitutes unfair competition.  A recent decision of the Alberta Court of Appeal in the case of Evans v. The Sports Corporation, 2013 ABCA 14, helps to clarify some of the principles applicable in Alberta.

The Evans case involved a hockey player agent who was employed by an agency in Edmonton.  Mr. Evans was personally responsible for players coming from Eastern Europe.  After working for the agency for a number of years, he left the business to set up his own agency.  Many of the players who used his former employer came over to him at his new business.  The former agency sued for breach of a non-competition clause in his employment agreement, and also for breach of fiduciary duty.

The Court ruled that the non-competition provisions in the employment agreement were not worded with sufficient certainty and therefore could not be enforced against Mr. Evans.  However, the Court went on to find that Mr. Evans had breached his fiduciary duty to the agency, because he had hired two other employees away from the same agency and had instigated those employees to solicit business from players who were under contract with his former employer.  The Court ruled that this was the same as Mr. Evans soliciting those clients directly, which he was not allowed to do on the basis of the fiduciary duty that he was subject to.  The Court did note that if Mr. Evans had simply opened a new business, and had advertised to the world at large that he was now open for business, and those players of their own accord had decided to come to him, then he would not have been in breach of his fiduciary obligations towards his ex-employer.

The message from cases such as this for departing employees, whether they leave voluntarily or their employment is terminated by their employer, is that they have to review their legal position very carefully before they start a new job or business to assess whether they may be in breach of legal principles that are part of a fiduciary duty.