Restrictive clauses in salesman’s employment contract too broad to be enforceable

Salesman who joined a competitor and lured away one of his former employer’s most lucrative accounts did nothing wrong

Atlantic Business Interiors Ltd. v. Hipson, 2005 CarswellNS 51, 38 C.C.E.L. (3d) 1 (N.S. C.A.)

A salesman who joined a competitor and lured away one of his former employer’s most lucrative accounts did nothing wrong, the Nova Scotia Court of Appeal has ruled.

Scott Hipson joined Atlantic Business Interiors (ABI) in 1994. A clause in his employment contract provided that he would not work in Nova Scotia, for one year after leaving the company, for a company engaged in a business similar to ABI.

At ABI, Hipson was the exclusive sales representative for the Information Technologies Institute (ITI) account, one of the company’s most important accounts. In March 1998, a month after leaving ABI, Hipson joined a close competitor, Office Interiors Inc. In April ITI moved most of its business to Office Interiors.

ABI launched an action against Hipson and Office Interiors for the loss of the ITI business. ABI lost the case and appealed.

The Court of Appeal upheld the decision. The lower court judge found the restrictive clause in Hipson’s employment agreement was too broad. Generally a non-competition clause is only valid when a non-solicitation clause isn’t adequate. It was unreasonable to not allow Hipson to earn a living in his area of competence. A simple non-solicitation clause would have accomplished ABI’s goal, said the judge.

The judge agreed ABI had a legitimate proprietary interest in protecting its relationship with ITI. Hipson was responsible for maintaining relations with ITI — he was familiar with ITI’s product needs, scheduling requirements and pricing expectations at its time of growth. This made ABI “very much dependent” on Hipson, said the judge.

As such Hipson owed a fiduciary duty to ABI, and the company could reasonably expect that he not solicit its customers. The trial judge ultimately decided that while there was some circumstantial evidence Hipson had done so, there was also evidence he hadn’t.

There was no doubt the managers of Office Interiors had it in the back of their minds that ITI might follow Hipson to their company, said the judge. But notwithstanding how it looks, the court was not prepared to infer Hipson had actively solicited ITI’s business away from ABI.

In this, as with the other issues, the Court of Appeal upheld the trial judge’s rulings. There was no evidence of positive acts of solicitation. ITI’s moving to Office Interiors wasn’t because of anything Hipson did. It was because of what he was – a good salesman known by ITI to be responsive to its needs, decided the court.

In any case that was not the primary cause of ABI’s loss of the ITI account, the judge ruled. ITI had considered Office Interiors as a company to do future business with before Hipson left. By the time Hipson moved events were already out of his hands. It was too late for him to have solicited ITI’s business as that process was already under way.

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