When an employment relationship ends, the departing employee may still have obligations toward the former employer. For example, employees occupying senior executive positions often owe a duty of continuing confidentiality with respect to trade secrets, client lists, and other pertinent information that is integral to the former employer’s operation. The exact parameters of such an obligation, such as the length of time it lasts, are usually negotiated by the parties in a severance agreement. If a former employer believes such an agreement has been breached, it can commence a claim for that breach in court. However, doggedly pursuing such a lawsuit, despite repeated losses in court, is an expensive course.
Employer Terminates President of Company Without Cause
The Ontario Court of Appeal considered how far the obligation of confidentiality extends post-termination in EF Institute for Cultural Exchange Limited v. WorldStrides Canada, Inc. That case involved David Conklin (“David”), who began working for the EF Institute for Cultural Exchange Limited (“EF”) in 2005 and eventually worked his way, by October of 2015, to the position of President of the company. EF terminated David’s employment without cause despite his success in September 2014. Due to David’s dismissal from employment, the parties negotiated a severance agreement intended to govern the parties’ conduct and obligations post-termination.
While the severance agreement contained many provisions with respect to the dissolution of the employment relationship, including details in respect of monies to be paid to David by EF, employment placement assistance to be provided to David, and the parties’ mutual confidentiality obligations, it also included a restrictive covenant which dictated that David was not permitted to directly compete with EF until one calendar year had elapsed from the date the agreement was signed. The restrictive covenant specifically stated as follows:
“for a period of one year following termination of Employee’s employment with the Company, Employee will not directly or indirectly…
(b) … interfere in any way with the employment relationship between such employee [“any person employed by the EF at the date of the termination of Employee’s employment”] and EF.
(c) engage or participate or render services or assistance to any business that competes directly with any product or service that Employee participated, engaged in or had confidential knowledge of during the Employee’s employment with the Company.”
Employee Seeks and Finds Re-employment with Competitor
In the days and weeks following his termination, David utilized the job-hunting assistance EF offered under the severance agreement, which led him to submit his resume to WorldStrides. This company is in direct competition with EF. In April 2015, David interviewed WorldStrides, whom he made aware of his previous employment with EF. As a result, WorldStrides requested and was provided copies of David’s employment and severance contracts with EF. In June of 2015, following a review of the documentation, WorldStrides verbally offered David a General Management position with its organization, to start one day after the expiration of the non-competition period to which David was bound with EF. David then attended a lunch with the Vice President of EF, Adam Singer, whom he advised of the offer from WorldStides. Despite being reminded by EF of his responsibilities under the severance agreement, David accepted WorldStrides’ offer and began in his new role on the date intended.
Former Employer Sues Terminated Employee for Breach
Shortly after beginning his new role with WorldStrides, EF commenced a claim against both David and WorldStrides, alleging that each party had violated both the restrictive covenant contained in David’s severance agreement with EF and the confidentiality provisions contained therein and that David had violated his fiduciary duty in even accepting an interview with WorldStrides. Worldstrides’ motion for injunctions was dismissed, and the matter proceeded through the full discovery phase, eventually being set down for trial. At that point, David and WorldStrides successfully moved for summary judgment. As such, the matter was dismissed and considered closed. EF appealed that decision and sought to reinstate the matter to the Superior Court of Justice for trial.
The Court of Appeal Weighs-In
The Appellate Court began by reviewing the motion judge’s decision and noted that an analytical approach had been taken in assessing the evidence at first instance. In considering whether David had breached his fiduciary duties in accepting an interview with WorldStrides, the court stated that accepting an interview with a competitor of a former employer does not constitute a breach of fiduciary duty:
“ Further, the motion judge, at para. 27, cited Guzzo v. Randazzo, 2015 ONSC 6936 for the proposition that meeting with a prospective future employer that is a competitor is not, on its own, a breach of fiduciary duties. The paragraphs cited by the motion judge in Guzzo deal directly with the issues of competition raised in this appeal: preparing for future employment with a competitor, sharing qualifications, and maintaining confidentiality. Although the motion judge judge’s reasons could have been more explicit, fair reading of the reasons and record make it clear that the motion judge considered and resolved the issue of Mr. Conklin’s non-compete obligations. The reasons as written are adequate for appellate review.”
Moreover, EF’s contention that the summary judgment had been granted inappropriately was unsubstantiated by the facts:
“ Having had full discoveries and after seven years, the appellant’s inability to substantiate these arguments tells against it. Both parties were called to put their best foot forward. While the onus was on the respondent on the motion, the respondent’s evidence met the evidentiary burden to the motion judge’s satisfaction. There was not enough evidence to require a further response. This assessment is entirely within the motion judge’s area of responsibility, and we defer.”
Court of Appeal Calls Lawsuit a “Corporate Grudge Match”
As a result, the Court of Appeal was satisfied that EF did not provide any evidentiary or legal basis to overturn the decision to dismiss the lawsuit summarily. The Court of Appeal went quite a bit further and observed that EF appeared to be engaging in some sort of “grudge match” against David and EF:
“ EF’s case has dwindled and now seems to be a corporate grudge match that does not deserve to be prolonged further. This was plainly the motion judge’s perception and we share it.”
The appeal was dismissed, and EF was ordered to pay David and WorldStrides $25,000 in costs.
Contact The Employment Lawyers At Tierney Stauffer LLP in Ottawa, Kingston, Cornwall or North Bay If Your Former Employer Has Sued You
Every employee is important, and their work matters, regardless of the position held by an employer. Employees do not deserve mistreatment at the hands of their employers, and certainly, no employee should be pursued through the court system by a vengeful former employer. Our team understands and fights for the rights of employees every day. Tierney Stauffer LLP has extensive experience negotiating severance agreements and enforcing employee rights. Contact us today to schedule a consultation, either online or by telephone at 1-888-799-8057