Global company didn't want former employee competing with its business anywhere for one year
This instalment of You Make the Call features a dispute over the validity of a restrictive covenant in an employment contract.
Tom Mason worked for Chem-Trend, a manufacturer of chemical agents based in Michigan that operates worldwide, as a technical sales representative. Mason was hired to work for the company in Ontario in 1992. As part of his hiring, he was required to read and sign Chem-Trend’s confidential information guide and agreement. The agreement included a clause that stipulated he could not work in competition with Chem-Trend, solicit business from anyone who was a Chem-Trend customer during his period of employment with the company or hire any Chem-Trend employee, for one year following the termination of his employment, regardless of whether he or the company terminated his employment. Mason reviewed and signed the agreement.
Mason worked for 17 years with Chem-Trend, including eight years in the United States. He became familiar with the businesses of Chem-Trend’s customers and the company’s products. However, in summer 2009, Chem-Trend terminated Mason’s employment. Mason sued for wrongful dismissal and challenged the restrictive covenant, arguing Chem-Trend was involved in every type of manufacturing industry and operated in every country in the world and the broadness of its scope and business, along with the length of time restricting him, made the covenant unfair and unreasonable.
Chem-Trend countered that the restrictive covenant was clear in its scope and necessary to protect valuable information about its customers, operations and products. It said Mason had plenty of time to look it over and raise any concerns about it, as he did with his vacation allotment, which he negotiated.
You Make the Call
Was Chem-Trend’s restrictive covenant reasonable?
OR
Was the covenant too broad to be enforceable?
If you said the restrictive covenant was reasonable and enforceable, you’re right. The court found the provision in the employment agreement was not ambiguous, as the wording was clear and defined the limits of the restrictions. It also found Mason read and understood the agreement since he negotiated other parts of it that weren’t initially to his liking, such as his vacation entitlement.
The court agreed with Chem-Trend that although the geographic scope of the covenant was broad, it was necessary because Chem-Trend’s business was global and operated in a wide variety of countries and industries. In fact, Mason was able to transfer to various regions during his time with Chem-Trend, including several states in the U.S. as well as working in Canada. It was also possible for Chem-Trend customers to have operations in several different regions.
The court also found the one-year period of restriction was reasonable. It found Mason had access to “significant information about Chem-Trend’s unique products, operations, customers and pricing that could be used against Chem-Trend and be harmful to its business” and his years of experience and contacts in different regions made him a threat to the company if he started competing against it. Also, given his length of service, one year was not a long period of time, said the court.
“I find the geographic scope and activity restricted are necessary in the circumstances of Chem-Trend’s business and bearing in mind Mr. Mason’s employment and his knowledge of Chem-Trend’s business, products and customers,” said the court. “To the extent such restrictions are more onerous than the norm, they are balanced by the fact that the covenant is only in place for one year.”
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