Telehop’s non-competition clause too broad to be enforceable

Telehop Communications Inc. v. Abott (2002), 22 C.C.E.L. (3d) 142 (Ont. S.C.J.)

Telehop Communications sought an interlocutory injunction restraining its former employee from breaching a non-competition clause contained in his employment contract. The non-competition provision was broad.

It prohibited the employee, Stephen Abott, from providing consulting services or otherwise being concerned with any business that was competitive with Telehop for a period of two years or such lesser amount of time as a court might determine is more reasonable. Abott had started an action against Telehop for constructive dismissal after the termination of his employment.

After leaving Telehop, Abott’s fiancee began a company, Caztel, which provided a long distance “casual calling” service. Although casual calling was one of the services Telehop had started to provide by the date of trial, it was not engaged in providing such services when Abott signed his employment agreement. Telehop took the position Abott was providing consulting services to Caztel and that this was a breach of the non-competition clause contained in his employment agreement.

The court held Telehop was not entitled to an interlocutory injunction restraining Abott from breaching the non-competition provision. The court said it had serious reservations as to whether the non-competition covenant was legally enforceable because the law requires the temporal restriction be reasonable. The court was not satisfied a two-year restriction was reasonable. Furthermore, given Telehop was not alleging Abott was using confidential information, it appeared Telehop was simply arguing Abott should be prohibited from using his skill and knowledge to compete against Telehop and such a restriction was not enforceable in general.

Consequently the court held Telehop had not satisfied the first part of the test for injunctive relief, which was that Telehop establish it had a strong prima facie case. The court went on to state that even if Telehop had met this requirement of the test, it did not satisfy the other two parts of the test either — that Telehop would suffer irreparable harm if the injunction was not granted and that the balance of convenience favoured Telehop.

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