Employment contract went too far in trying to restrict a junior associate from practising his trade
”Generally speaking, the courts will not enforce a non-competition clause if a non-solicitation clause would adequately protect an employer’s interests.” That is the most recent lesson of a dispute between two dentists in Windsor, Ont., Bernard Lyons and Joseph Multari.
Last year, Lyons won $70,432 from Multari after the Ontario Court (General Division) held that Multari breached the non-competition clause of an employment contract. In its entirety, the clause said, “Protective Covenant. 3 yrs. - 5 mi.”
Despite his high level of education, Multari claimed that he had not understood this clause when Lyons, an oral surgeon with 25 years of experience, took him on as a junior associate in his office. The pair formalized the employment arrangement in a three-paragraph contract which covered less than a page. One of the paragraphs was the six-word “protective covenant.”
The trial judge held that the clause was “elegant in its simplicity.” Multari was sophisticated enough to understand the clause, the trial judge said, and it was a reasonable restriction on competition.
The trial judge was “of the view that there remained portions of the city from which Dr. Multari could practice, that there was no restriction to his seeking referrals from within the five-mile area, so long as his office was not located there, and there is no evidence put before me based upon which I could conclude that the net ultimate effect of the five-mile or three-year restriction would be to preclude the possibility of Dr. Multari engaging in the practice at all, and as a consequence denying to the public generally access to his expertise and services.”
Q Was the trial judge correct that a non-competition clause was necessary and reasonable in the circumstances?
A The Ontario Court of Appeal has ruled that, in the circumstances, the non-competition clause was too harsh. It amounted to illegal restraint of trade, given that a simple non-solicitation clause — for example, “for a period of three years, Multari will not solicit any of the patients or referring physicians he has had contact with while working as an associate of Lyons” — would have served.
Writing for the appeal court, Justice James Macpherson has agreed with the trial court that Lyons had a proprietary interest in other dentists who referred work to his practice. The referral relationships amounted to part of the practice’s goodwill, Justice Macpherson has ruled. As well, Justice Macpherson has found nothing wrong with the geographical (five-mile) and time (three-year) limits in the non-competition clause.
The courts were “disinclined to restrict the right to contract,” Justice Macpherson has held, “particularly when that right has been exercised by knowledgeable persons of equal bargaining power.” Here “the relationship between Dr. Lyons and Dr. Multari was one between equals. Although Dr. Lyons had practised oral surgery in Windsor for almost 25 years whereas Dr. Multari was just embarking on his career, the reality is that Dr. Multari was a highly educated man with many employment options open to him. Indeed, he chose an association with Dr. Lyons over one with Dr. Silverman, another oral surgeon in Windsor.”
However, Justice Macpherson has ruled in Multari’s favour because:
•Lyons had no general proprietary interest in the referring dentists — that is, he had no special interest in those who did not regularly refer patients to him.
•Although Lyons had treated Multari well, referring sufficient patients to Multari that he earned $200,000 in his first year of practice, Lyons benefited from the association. He took a percentage of Multari’s billings over a base amount.
•Multari had no management power in the dental practice. He was simply a junior employee and never exploited any of the practice’s confidential information.
•Finally, the dental profession generally preferred non-solicitation over non-competition clauses.
•Lyons had no general proprietary interest in the referring dentists — that is, he had no special interest in those who did not regularly refer patients to him.
•Although Lyons had treated Multari well, referring sufficient patients to Multari that he earned $200,000 in his first year of practice, Lyons benefited from the association. He took a percentage of Multari’s billings over a base amount.
•Multari had no management power in the dental practice. He was simply a junior employee and never exploited any of the practice’s confidential information.
•Finally, the dental profession generally preferred non-solicitation over non-competition clauses.
(Multari did not appeal the trial judge’s rulings that he understood the non-competition clause and that it was reasonable in its terms.)
“For all of these reasons,” Justice Macpherson writes, “I conclude that Dr. Lyons’ non-competition clause is unenforceable. His legitimate interest in protecting his own referring dentists and patients could have been protected by a non-solicitation clause. An established professional person or firm — be it in the field of dentistry, medicine, engineering, architecture, law or other professions — will constantly seek to recruit entry level associates to the practice. Such recruitment is good for the established person or firm and for the young associate.
“It is natural that many of those relationships will end after a few years. Sometimes the firm will terminate the relationship; in other cases the associate will decide to move on.
“For professional and personal reasons, many associates will want to continue to work in the same community after they have left their original employer. There is nothing wrong with such a preference. However, the employer has a legitimate interest to protect — namely, its clients” — an interest that, in this case, a simple non-solicitation clause would have safeguarded.
For more information: Lyons v. Multari, Ontario Court of Appeal docket C31362, Sept. 21/00.
Jeffrey Miller is editor of Canadian Employment Law Today. For subscription information, call (416) 609-3800 or (800) 387-5164.
