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Restrictive covenants that “stick”

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This week, we continue to look back at noteworthy 2007 employment law cases.  For people who are interested in the duties imposed on departing employees, have a look at H.L. Staebler Co. v. Allan [2007] O.J. No. 3460, a decision of the Ontario Superior Court of Justice.  The case revolved around whether an employer’s restrictive covenant was enforceable.  The covenant stated that an employee, in this case a “commercial insurance producer”, was prevented from conducting business with any customers of the employer that were serviced by the employee at the date of their resignations for two years.

The two employees in question blatantly ignored this restriction.  With the assistance of their new employer, they resigned their positions without notice, and began to immediately solicit and secure the business of the customers with whom they did business at their former employer.  Two weeks after their departure, their former employer was successful in getting an injunction preventing them from accepting any of this work.  However, by this time, 118 of the clients had already moved their business.

The Court upheld the restrictive covenant, saying that it was reasonable in the circumstances, and the employees, and their new employer, had to pay the former employer close to two million dollars in damages.

We like this case because it shows that a well crafted restrictive covenant can be enforceable in the right circumstances.  While overly broad restrictions are difficult to defend, here, the employer focused on its most pressing economic interest – the relationship that is built between employees and the clients they serve – and was successful.

Janice Rubin