The court in the recent case of Ostrow v. Abacus Management Corp. Mergers and Acquisitions  B.C.J. No. 1046 considered the impact that a non-competition provision in an employment contract (or hiring document) can have on the damages awarded to an employee terminated without just cause. While the case is interesting for many reasons, that is the specific issue that I want to focus on.
The plaintiff commenced employment with Abacus Management Corporations Merger and Acquisitions ("Abacus") as a US taxation specialist on March 1, 2011. His employment was terminated on December 1, 2011. At that time he was 40 years old, held the position ofSenior Manager with Abacus' Structured Financial Solution Group, specializing in US taxation and working on multimillion-dollar transactions and was earning an annual salary of $135,000 plus a bonus in the range of 15% of income and participated in Abacus' extended health, dental, AD&D, life and disability insurance plans.
His employment contract initially provided that Abacus could terminate his employment by providing him with his entitlement under the Employment Standards Act. This was not acceptable to the plaintiff and he was able to negotiate an amendment to the contract which stated that he would be provided, on termination, with "reasonable notice according to the law or pay in lieu of notice in accordance with the law..."
At the time of his termination, and for purposes of this discussion, the plaintiff was reminded him of the non-competition clause in his employment agreement.
The Court considered the period of reasonable notice and, of course, referenced the seminal cases of Bardal v. Globe and Mail Ltd. and Honda Canada Inc. v. Keays. Specifically, the Court considered the Bardal factors of character of the employment, length of service, age and the availability of similar employment, having regard to the experience, training and qualifications of the employee.
The Court made a number of observations that are important:
- In considering character of employment the Court commented that it was of less importance, these days, to distinguish between supervisory and non-supervisory employees when weighing this factor. The Court stated that “Rather than focus on supervisory duties, courts have occasionally looked at the salary of the plaintiff as indicating the level of responsibility or seniority of a job”. In the absence of evidence to the contrary, character of employment , in modern times, is a factor of minimal weight in the assessment (see for example Di Tomaso v. Crown Metal Packaging Canada LP 2011 ONCA 469 (CanLII) and AMEC Americas Limited v. MacWilliams, 2012 NBCA 46 (CanLII))
- Concerning length of notice, the Court observed “it has generally been accepted by the courts in this province [British Columbia] that short term employees are entitled to a proportionately longer period of notice”. Reliance was placed on Saalfeld v. Absolute Software Corp., 2009 BCCA 18.
- The Court considered the evidence of job security as a factor in the reasonable notice assessment. Although closely related to inducement (which was specifically found not to be present in this case), it was seen as being different. Specifically, “where the reasonable expectation interests of the employee have been affected by the assurances of job security, the court may lengthen the notice period required”. Such was the case in Ostrow both at the contract negotiation phase as well as during the term of his employment.
- The Court considered the vulnerability of the employee. More particularly, “health issues of an employee may reasonably affect [the ability of the employee to find alternative and comparable employment] by making them less desirable to prospective employers”. While recognizing that the plaintiff was “under great stress due to his financial situation which is similar to most people who lose their jobs and are put under increased financial stress” there was no medical evidence presented regarding his vulnerability and he rarely showed signs while at work that he was suffering from a medical condition.
- The Court then moved on to consider the impact, if any, of a non-competition being included in the employment agreement on the assessment of reasonable notice.
The Court observed that there was a surprising lack of jurisprudence on the relationship between a non-competition clause and the length of the reasonable notice period.
In Ontario, the issue was considered in Khan v. Fibre Glass-Evercoat  O.J. No. 1877where the employers instance that the terminated employee abide by a five (5) year non-competition agreement would make it more difficult for the employee to find alternate employment and, therefore, it was appropriate to extend the period of reasonable notice.
A similar conclusion was reached in Budd v. Bath Creations Inc.  O.J. No. 5468 where the Court extended the reasonable notice period from 10 months to 13 months because the:
... non-competition agreement required by the defendants was certain to affect the availability of similar employment, to make it much more difficult, in fact, to find similar employment. I add three months to the period of notice on that account.
In Watson v. Moore Corporation Ltd.  B.C.J. No. 525, a British Columbia case, it was found that the non-competition clause was an important factor in assessing the length of the notice period despite the fact that the clause could not be enforced because the contract was void.
The Court in Ostrow relied upon this line of cases and found that the existence of a non-competition provision serves to increase the period of reasonable notice to which the plaintiff was otherwise entitled.
The Court found that reasonable notice was 6 months salary. The Court went on to say that:
In calculating damages in a case of wrongful dismissal, the issue is what the employee would have been entitled to had they remained employed by the employer during the notice period. This will include any salary payable to the employee during this time. It will also include all benefits, including a bonus, to which the employee would have been entitled (Martell v. Ewos Canada Ltd., 2005 BCCA 554, at paras. 26 and 27 and Hawkes at paras. 72-73 and 76). The employer is also required to compensate an employee for the amount of money paid to replace lost benefits during the notice period: Sorel v. Tomenson Saunders Whitehead Ltd. (1987), 15 B.C.L.R. (2d) 38 (C.A.) [Sorel].
The Court awarded a total of $87,152.19 which included salary, bonus and CPP contributions that the employer would have made during the notice period.
Why is this case important?
This is a case that covers a lot of ground. The Court considers a number of fundamental reasonable notice and damages principles. While employers tend to want to include non-competition provisions in employment contracts (despite the trend towards their being held to be unenforceable in most cases, for example Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344 (CanLII) leave to appeal to the Supreme Court of Canada dismissed 2012 CanLII 696 (SCC)) the inclusion of these clauses in employment contracts could have some unanticipated consequences on the damages calculation.
Considering the Ostrow line of cases, employers would be well advised to assess the enforceability of the non-competition clause at the time of termination, consider whether they want to hold firm on compliance with the provision and, if not, advise the employee at the time of termination that it is not holding him or her to the non-competition agreement. By doing so, it is hoped, the employer could argue, if challenged, that the non-competition obligations (having been waived) have no affect the employees’ ability to secure other employment.