When an ex-employee becomes a competitor

Quebec decision underscores importance of reasonable non-competition clauses

On Aug. 26, 2003, the Quebec Court of Appeal rendered a ruling in Re: Gestion Marie-Lou (St-Marc) inc. v. Lapierre on whether or not an employee who resigns can solicit and target important clients of the former employer without violating fiduciary obligations imposed upon him under the law.

Article 2088 of the Civil Code of Quebec states “the employee is bound not only to carry on his work with prudence and diligence, but also to act faithfully and honestly and not to use any confidential information he may obtain in carrying on or in the course of his work. These obligations continue for a reasonable time after cessation of the contract, and permanently where the information concerns the reputation and private life of another person.”

The facts in this case are simple. Shortly after quitting, a salesperson entered into contact with a number of clients of his former employer. Having developed and maintained a strong relationship with those clients, many of them chose to continue doing business with him and his new employer, which was a competitor.

The former employer found out about the situation and filed a motion for an interim injunction. The injunction was initially awarded but was later dismissed at trial. That judgement was then appealed.

It is critical to note the parties in this case were not bound by a non-competition clause in an employment contract. As such, the principle of free trade in the marketplace is only tempered by the obligations of loyalty, which is somewhat analogous to the fiduciary duty established in the common law, and that of confidentiality. In this context, the Court of Appeal reached the conclusion that the ex-employer’s price list, its list of clients and annual sales figures are not considered confidential.

The fact this information was acquired while the employee was working for his previous employer does not, in and of itself, make them confidential in nature. The employer was unable to establish for the court this information was confidential under the circumstances. In other words, the employee convinced the court the information could easily have been obtained elsewhere — he could have simply contacted the clients and asked them for all the necessary information.

In the same vein, the Court of Appeal confirmed that, in light of the contractual nature of a recourse invoking Article 2088, it is incumbent upon the plaintiff in such an action to prove the confidentiality of certain information obtained through a worker’s employment.

The argument of confidentiality having been dismissed, the previous employer still had recourse to the second fact of Article 2088, which is to argue the ex-employee acted in such a way as to violate his obligation of loyalty and that he made false statements about his ex-employer and, by doing so, denigrated that employer. The court quickly dismissed this argument — this onus is not an easy one to prove.

If there is anything that resounds clearly from this ruling, it is that employers should equip themselves against the possibility of such occurrences. The best preventative instrument available is an employment contract with a non-competition clause and a clear confidentiality clause. The employer should establish clear guidelines that specify which documents and information it deems confidential and ensure that those guidelines are well-known and enforced.

With respect to the issue of competition, following this ruling, it is also strongly recommended that employment contracts contain a non-competition clause that is both clear and reasonable. It should prohibit an ex-employee from directly selling in a given market sphere to competitors of the ex-employer for a determinate period of time after resignation or discharge. It is important that such a clause isn’t unreasonable as to its geographic and duration application. Failing to take these precautions, could result in ex-employees becoming direct competitors.

For more information see:

Re: Gestion Marie-Lou (St-Marc) inc. v. Lapierre, JE 2003-1698 (C.A.)

Patrick Goudreau is a corporate and commercial attorney with Dunton Rainville. He can be reached at (514) 866-6743 ext. 424 or [email protected].

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