Non-Competition In Quebec: Employers Should Precisely Define Prohibited Work In Employment Contracts

The Superior Court recently issued a significant warning to employers operating in Québec regarding the drafting of non-competition covenants included in employment contracts: it is a best practice to clearly define the type of prohibited work in these clauses. Failure to do so may result in the non-competition covenant being deemed abusive when seeking enforcement before the Court. In such cases, the employer risks being ordered to pay the employee's legal fees.

Case Analysis: Jutras c. La Presse (2018) inc., 2023 QCCS 2506

In Jutras c. La Presse (2018) inc. ("La Presse")¹, the Superior Court not only ruled that the non‑competition clause was invalid because of its lack of specificity regarding the activities targeted by the clause, but also ordered the employer to reimburse nearly $200,000 in legal fees for having requested its enforcement.

The Superior Court found the employer had abused its right to legal action, given that the non-competition provision clearly did not meet the criteria of public order under article 2089 of the Civil Code of Québec, which mandates that such provisions be limited as to time, place, and type of employment to the extent necessary to protect the legitimate interests of the employer. The non-competition clause in question prohibited the employee from working "in any way whatsoever"² for another company involved in the sale of advertising space.

The employer's persistence in seeking the application of the non-competition clause, which had previously been rejected during the provisional interlocutory injunction stage due to its apparent invalidity, was viewed by the Court as an abuse of procedure. This conclusion was reached when the employer attempted to request the enforcement at the safeguard order stage, despite the content of the motion being identical to earlier proceedings. According to the Court, a reasonable person would have refrained from such actions and recognized the lack of merit in pursuing this course. From the outset, the overly broad prohibition on the work targeted by the non-competition clause should have indicated to the employer that there was no appearance of a legal right to enforce it.

Despite the Court's findings in La Presse, an analysis of previous case law on non-competition clauses illustrates that the position of Québec courts on this matter is far from unanimous.

Two Diverging Approaches to the Specificity of Prohibited Activities Required in Non-Competition Clauses in Quebec Case Law

1. The clause is valid even if the type of work is not precisely defined

A first line of case law supports the validity of non-competition clauses that broadly define prohibited activities without particular specificity regarding the nature of the work targeted by the clause. According to this approach, the validity and reasonableness of the non-competition clause must be assessed globally in light of the relationship between the parties and the circumstances in which it was stipulated.

For instance, the landmark decision of the Québec Court of Appeal in Ubi Soft Divertissements Inc. c. Champagne-Pelland [Ubi Soft] (2003) illustrates the analytical framework associated with this line of reasoning.

• This case involved former video game designers who joined a competitor after leaving their employment at Ubi Soft.
• Their employment contracts included non-competition clauses preventing them, for a period of one (1) year after the termination of their employment, from working directly or indirectly for any company manufacturing or marketing video products that might compete with Ubi Soft.
• Although the clause did not impose any specific restrictions on the nature of services that employees could not provide to competitors, it was considered prima facie valid during the application for a safeguard order.

Following this decision, Quebec courts continued to render decisions that followed the reasoning held by the Court of Appeal in Ubi Soft.

For instance, this contextual approach was applied again by the Court of Appeal in 2005, in Lemieux c. Marsh Canada Ltée [Lemieux].

• The non-competition clause in dispute stipulated that the employee agreed, among other things, not to "bind himself [as] an employee" or "provide [...] any other assistance"³ to competitors of the employer.
• The Court of Appeal concluded that the clause was valid, reasonable, and necessary in the circumstances.

More recently, in 2019, the Superior Court further endorsed this interpretation in Groupe PPD inc. c. Valois [PPD].

• The non-competition clause at issue stated: "[...] I [the employee] agree and undertake not to [...] in any way whatsoever [...] in any capacity whatsoever, do business, be involved, be employed or have an interest in activities or in a company whose activities are the same as those of the Company [...]".⁴
• The employee in question was a mechanical manufacturing engineer who worked at PPD as an injection moulding plant manager at the time of his departure from the company.
• Despite the employee's argument that the clause was too broad and could in essence prevent them from working in roles like janitor, clerk, receptionist, or administrative assistant, the Superior Court held that the clause was sufficiently specific for it to be considered valid, at least prima facie, during the initial assessment at the interlocutory and provisional stage.

Given the precedent set by the first line of case law, which provides that a non-competition clause can be considered valid even if it does not precisely limit all services an employee is prohibited from providing to a competitor, the Superior Court's ruling of procedural abuse in the La Presse decision is notable.

2. The clause is invalid if the prohibition on the type of work is too broad

Prior to the La Presse decision, there was a second line of case law indicating that the validity and enforceability of a non-competition clause depend on whether the restricted activities are defined with sufficient precision.

The Superior Court's 2017 decision PCM Sales Canada Inc. c. Botero-Rojas [PCM] is one example of the reasoning followed by this second line of case law.

• In this case, the clause in question prevented employees from working in the field of "sales, promotion, strategic objective research, service implementation, and outsourcing"⁵ of information technology for a period of twelve (12) months.
• The Court found that this clause was overly broad given the lack of precision with respect to the specific activities it prohibited. The clause therefore extended beyond what was necessary to protect the legitimate interests that the employer was seeking to protect.
• Accordingly, the Court ruled in favour of the employee's right to work.

In 2016, the Superior Court followed the same reasoning in Diffusions Nu-Book inc. c. Bastien [Nu-Book].

• The non-competition clause in question required the employee "[...] not to [...] in any other way, engage in, take an interest in, operate or advise [...] any party who [...] participates in the operation of any other business in which the employer may be involved at the time the employee ceases to be employed."⁶
• The Court found that the prohibition on performing any work in the targeted field was overly board thereby rendering the clause invalid.
• In refusing to issue the interlocutory injunction, the Superior Court concluded that: "a person bound by a non-competition clause must also know what he/she is prohibited from doing with a certain degree of precision."⁷

The Singularity of La Presse Decision

In light of the foregoing, it is prudent to consider the ruling in La Presse, wherein the Superior Court not only invalidated the clause, but also characterized the employer's conduct as abusive. As a result of the employer's actions, the Court mandated payment of the former employee's legal fees, totalling nearly $200,000. Apart from its procedural and factual peculiarities, this decision notably differs from others due to the severity of the position taken against the employer seeking enforcement of the non-competition clause.

Given the conflicting lines of case law, it is plausible that the Superior Court could have arrived at a different conclusion regarding the validity of the non-competition clause in question. Nonetheless, the La Presse decision highlights the risk that an employer may be deemed to have acted abusively if it fails to identify the weaknesses of a non-competition clause "upfront" before seeking enforcement before the court. This is a risk that cannot be disregarded.

Practical Considerations

The La Presse decision serves as a reminder for employers about the importance of implementing best practices when drafting employment contracts, particularly non-competition clauses. The following are key considerations to bear in mind :

• Tailor non-competition clauses to align with the specific roles and responsibilities of each position. To maximize the chances of successfully enforcing these clauses in court, it is advisable for employers to align these clauses with the particular duties of each position and each individual employee. Each case must be tailored to its unique facts.
• Regularly review and update employment contract templates. Employment contracts, including non-competition clauses, should be reviewed on a regular basis.
• Establish clear temporal and geographical limits. Not only must non-competition clauses have clear limitations regarding the type of work restricted, but also as to time and location. These limitations must only extend to what is strictly necessary to protect the legitimate interests of the employer. Any ambiguity or exaggeration may compromise the validity and enforceability of these clauses before Québec courts.

Footnotes

1. This decision has not been appealed or judicially reviewed.

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