Non-compete agreement can't stand after employer's breach of agreement

Non-compete agreement was part of contract requiring certain level of work, but employee's work declined

A British Columbia worker did not breach his non-compete agreement because his employer didn’t live up to its end of the employment agreement, the B.C. Supreme Court has ruled.

Darryl Kramchynski was a qualified heating, ventilation, and air conditioning technician who moved to Powell River, B.C., in 1999 and started a company there. In March 2010, Kramchynski sold his business to Powell River Industrial Sheet Metal Contracting (PRISM). Under the sale agreement, Kramchynski would receive a sum of money for his business and would work as a Prism employee going forward.

As a condition of the sale, Prism required Kramchynski to sign a three-year non-competition agreement in the event he decided to leave Prism. The agreement provided that Kramchynski wouldn’t compete or be employed in the refrigeration business in the area of Powell River’s school district or disclose confidential information. Prism initially proposed a five-year non-competition agreement, but Kramchynski — surprised that there was one at all — insisted on reducing it to three years before he signed it and agreed to the sale.

Prism maintained the existing employees of Kramchynski’s company, though there were no written agreements for them.

Over the next few months, Kramchynski’s former apprentice — who had then become a full employee under Kramchynski — became unhappy with his compensation with Prism. He left the company in November 2010 and started working for a competitor. A number of customers followed him to the competing company.

Kramchynski tried to carry on with Prism, but he felt less motivated to build the business. As the business declined, Kramchynski felt he wasn’t getting enough hours. Prism’s director offered to pay him to look for work elsewhere, but Kramchysnki refused as the work wasn’t at his pay scale. Kramchynski suggested he do some work for another company — the company for whom his former apprentice was now working — but Prism’s director suggested the other company buy Kramchynski’s section of the business or bill him at his usual charge out rate. Kramchynski rejected the suggestions.

On March 29, 2012, Kramchynski quit his job at Prism and went to work with the competitor for whom he had suggested he do some work.

Prism sued for breach of its non-competition agreement and duty of faith in inducing another employee to leave for a competitor.

The court found that the non-competition agreement was agreed to as a fundamental component of the sale of Kramchynski’s business to Prism — Prism wouldn’t have acquired the business if it couldn’t secure Kramchynski’s skills and assurance that he wouldn’t simply leave to join a competitor.

However, the court also found the non-competition agreement was part of Prism’s agreement to employ Kramchysnki under the collective agreement and couldn’t be separated from it. While Prism initially employed Kramchynski under those terms — 40 hours per week with benefits — over time Kramchynski’s hours decreased and, as a result, his pay decreased.

“While I accept (the Prism director’s) evidence that he would not have purchased the business had (Kramchynski) not agreed to work for him and not to compete, I also accept Mr. Kramchynski’s evidence that he would not have entered into an agreement to work for (Prism), if he was only to receive part-time work,” said the court. “While (Kramchynski) did not insist that he be employed precisely 40 hours a week, in my view, he was entitled to expect to be fully employed in order that he could gain the benefit of the higher rate of pay and health benefit package provided under the collective agreement, as he had been promised.”

The court found the scope of the non-competition agreement was reasonable and was for the legitimate protection of Prism’s business. However, once Prism stopped providing Kramchynski with sufficient work, the non-competition agreement became unenforceable because the sale agreement and its attached employment agreement were essentially breached.

The court also found Kramchysnki didn’t induce his former apprentice to leave Prism, as Prism’s director knew the employee wasn’t happy with the way things were going and was looking to leave. The court also noted Prism didn’t do much to advertise when things were declining and, as a result, it wasn’t surprising some customers left with the former apprentice.

The court determined it was Prism who breached the employment agreement, not Kramchynski, and Kramchynski didn’t induce anyone to leave for the competition or act dishonestly in any way. Prism’s breach of contract claim was dismissed.

See Powell River Industrial Sheet Metal Contracting Inc. v. Kramchynski, 2016 CarswellBC 1342 (B.C. S.C.).

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