Brokerages wishing to enforce non-compete and non-solicitation agreements against former employees pending a trial are going to face a tougher time of it in light of recent B.C. court decisions, according to Dean Crawford of Heenan Blaikie.
Hub International acquired Redcliffe Investments in March 2011 from the father of Christopher Redcliffe. Christopher Redcliffe was offered employment at Hub as part of the deal.
Redcliffe’s contract included a restrictive covenant, which prohibited Hub’s ex-employees from soliciting or doing insurance-related business with clients or prospective clients of Hub or Redcliffe Investments. The prohibition against solicitation extended for 12 months, while the prohibition against doing insurance-related business was for 24 months.
Redcliffe resigned from Hub in June 2012, and the court found “there is no serious dispute that Mr. Redcliffe has taken on some former accounts of Redcliffe Investments.”
But when Hub asked the court for an injunction to get Redcliffe to stop doing business with its clients, the court refused, finding that Hub could not prove that Redcliffe’s actions would cause Hub “irreparable” harm prior to trial.
Citing a 2012 case involving the securities firm Edward Jones, the court noted that the harm caused by breaking a non-solicitation agreement can be calculated and therefore the harm before trial is not “irreparable.”
Conversely, the harm caused by breaking a non-compete agreement cannot be calculated, since, as the court put it: “It usually will not be possible to tell whether business is lost to the employee's new employer as a result of prohibited competition as opposed to legitimate competition.” Since the harm cannot be calculated, it is “irreparable” at trial, which is a strong reason for an injunction.
The court’s judgment dealt only with the restricted covenant’s non-solicitation clause, finding that Hub could in fact calculate its lost revenues though commissions based on premiums, which would have a paper trail. Since Hub could calculate its damages, it had not suffered “irreparable” harm prior to trial, the court ruled.
But, writing in Competing employee.com, Crawford noted that “the portion of the covenant preventing the defendant from ‘doing insurance-related business’ with his former employer’s clients is surely a non-compete clause, not a non-solicit provision. A former client could approach the defendant without him soliciting it, yet the defendant would be prevented from doing business with the client. That is a form of a non-compete provision.”
