Restrictive covenants 'have to be tailored for the specific circumstances of the employer and the employee'
An Ontario court has dismissed a series of claims brought by an employer alleging that a former employee misused confidential information, breached his contract, and unfairly competed against it when the worker quit to work directly for one of its clients.
When an employee quits and joins another company, the duties of that employee in terms of protecting his former employer’s information and for whom they can work are shaped by the nature of the employee’s position and their relationship to the organization, in addition to what the employment agreement says, according to Aleksandra Pressey, an employment lawyer and workplace investigator at Williams HR Law in the Greater Toronto Area.
“There are certain duties that employees owe employers, but it's different if you have an employee who's a member of your C-suite or is front-facing and a public representative of the organization - somebody who has very significant information and potentially a fiduciary duty to the employer -versus an entry-level employee,” says Pressey.
Boaden Catering is a provider of professional catering services in Mississauga, Ont. It had three branches of business – banquets and outdoor events, schools and daycares, and social initiatives such as shelters. The worker was hired as a sous chef in 2007 and was promoted to executive chef a year later, a role in which he oversaw the operation of Boaden’s kitchen for all three branches of the business.
Restrictive covenants
When the worker was hired, he didn’t have a written employment agreement. However, when he was promoted, he signed an “offer of employment/promotion” that included an agreement called “non-disclosure of confidential information and restrictions on competition by the employee,” for which Boaden used a template from the internet. The agreement prohibited the worker from disclosing Boaden’s confidential information and using it for his or another business’s benefit “either during or after the termination” of his employment.
The agreement also prohibited the worker from working within a 100-mile radius of any of Boaden’s locations or soliciting “in the prescribed area from customers of the employer” for 24 months after termination of employment.
Boaden provided the worker with a laptop computer so he could work from home and put together orders and review menus easily.
In 2014, a non-profit, licensed childcare centre called Earl Haig Community Daycare engaged with Boaden to provide meal catering services for two daycares it operated. Boaden’s revenue from the agreement was about $175,000 annually.
In the spring of 2015, Earl Haig hired the worker to perform meal preparation onsite at one of its daycares. The worker continued to work for Boaden for a few months until Aug. 28, when he resigned. Two weeks later, on Sept. 14, he took on the role of daycare chef for Earl Haig. In December, Earl Haig stopped ordering meals from Boaden.
Earl Haig provided the worker with a laptop for his work with the daycare. According to the worker, his Boaden-provided laptop stopped working before he quit the catering company, and he later threw it out.
Breach of confidentiality allegations
In May 2016, Boaden filed a lawsuit accusing the worker of improperly using confidential company information to set up an onsite meal program for Earl Haig and unfairly competing against it. Boaden sought $350,000 in general damages and an additional $100,000 in punitive damages, citing breach of contract, conversion, unjust enrichment, and other alleged infractions.
Boaden alleged that the worker solicited Earl Haig to move its meal program onsite and started developing Earl Haig’s menus and costing while he was still working for Boaden, using Boaden’s menus and price lists. The worker also disclosed confidential information about Boaden’s kitchen, the company said, adding that the worker used its menus to develop Earl Haig’s menus.
However, the court ruled that Boaden didn’t provide any admissible evidence to prove that the worker breached his obligations to Boaden or that Earl Haig had caused any financial harm to Boaden.
The court found that Boaden's information - such as menus, recipes, and delivery processes – didn’t qualify as confidential because there was no evidence it had been treated as such. The menus were distributed to more than 200 clients - including Earl Haig - without confidentiality restrictions, and elements like menu layouts and meal schedules were deemed to contain no proprietary secrets that were unique to Boaden, said the court.
The court also noted that, even if some of the information the worker used was confidential – such as a Boaden menu template the worker acknowledged using for a shortcut instead of starting from scratch - he only used it for his own benefit to save a few hours of labour and he didn’t compete unfairly against Boaden, given the purpose was for preparing kids’ meals with mostly basic choices and limited options due to dietary and allergy restrictions.
Confidential information
How confidential information is defined is important, but it must be information that is secret and particular to the employer for there to be a breach, says Pressey.
“It's not a breach of a confidentiality if the information becomes known publicly in a way that's not the employee's fault,” she says. “In this case, the things that [Boaden] said were confidential were things that they widely distributed, with the one exception of the menu template.”
“Confidentiality obligations tend to be the most likely to be enforceable, but an employee can't be restricted from using the skills and general knowledge they gained in a particular role, and confidential information shouldn't be defined to include or attempt to constrain that,” adds Pressey.
The court noted that Boaden didn’t provide any evidence of loss from any breach of confidentiality, other than lost profits from losing Earl Haig’s business. There was no evidence that the worker’s use of the menu template caused the lost profits, the court said.
The court deemed the restrictive covenants in the worker’s employment agreement to be void and unenforceable. The non-competition clause was overly broad and ambiguous, particularly as Boaden didn’t clearly define its “unit or regional office" and the 100-mile geographical area was too large, particularly since Boaden only operated in the Greater Toronto Area, said the court. Additionally, the court found that Earl Haig wasn’t a competitor of Boaden since Earl Haig only provided food services internally for daycare children and had no public catering business.
Non-solicitation clause overly broad
The non-solicitation clause was also unreasonable, according to the court, as it included the geographical area already deemed overly broad, a restraint of trade period that was too long, and the use of a term – “prescribed area” - that was too vague. Regardless, it was Earl Haig who solicited the worker, not the other way around, the court said.
Typically, a court isn't going to find that a strict restrictive covenant is enforceable if a less stringent requirement would be sufficient, says Pressey.
“If you want to start with a template, that's okay, but make sure somebody who has the knowledge required to appropriately tailor it to your circumstances looks at it - it doesn't necessarily have to be from scratch, but you should make sure that it's doing what it needs to do,” she says.
“The reality is that for most things related to employment law - policies, agreements, provisions such as non-competition clauses - they have to be tailored for the specific circumstances of the employer and the employee,” adds Pressey. “For a restrictive covenant to be enforceable, it has to be reasonable, which means that it has to not be an undue restriction on trade, as well as sufficiently narrow and unambiguous.”
Anger over resignation
The court determined that the case largely stemmed from Boaden's frustration over losing Earl Haig as a client along with a key employee, rather than any unlawful conduct on the part of the worker or Earl Haig.
“But the law doesn't compensate anger," the court said in dismissing all of Boaden’s claims against both the worker and Earl Haig.
Boaden might have taken a better look at the circumstances and what it wanted out of the lawsuit, particularly given how long it took and the costs, according to Pressey.
“Part of this dispute was that Boaden was angry at the worker, and it’s a reasonable sentiment for an employer – an employer may invest a lot of time and energy into an employee and come to rely on them, and then they jump ship,” she says. “That's not great, but the particular attempt at a legal recourse that this employer took might not be your best bet.”
“The best thing for an employer in a circumstance like this would be getting advice early, look at what actually happened, and what are the damages – it can be helpful to make sure that you're not spending eight years of your life and money on something like this.”
See Boaden Catering Limited v. Earl Haig Community Day Care, 2024 ONSC 5349.
