A Labour & Employment Law Update
In a recent Alberta case, a Court of Queen's Bench judge has upheld a so-called "Russian doll" clause in a non-competition agreement, although other cases have found them to be void for uncertainty. These clauses are named after the Russian matrioshka nesting doll in which there are a series of dolls of declining size inside the outer doll.
The employee had agreed not to engage in the "Prohibited Business" within the "Prohibited Area" at any time during the "Prohibited Period". The Prohibited Area had five separate declining areas ranging from a 100 to a 5 mile radius from the protected business, and the Prohibited Period had five separate declining time lengths ranging from five years to one year. The agreement stated that if the broadest protection was in the court's view unreasonable then the next less broad protection applied, and so on and so on.
The specific issue before the court was whether this form of restrictive covenant is incapable of being enforced by a court as it calls upon the court to "re-write" the agreement by selecting one scenario and editing out others. The Alberta Court of Appeal had, in a recent case, made it clear what has been trite law for many years: that the courts will not re-write an unreasonably broad restrictive covenant so as to permit its enforcement. However, the judge in the recent case was of the view that that did not prevent him from picking one combination of restrictions from the available options. He decided that one year and 20 miles was reasonable and upheld the clause to that extent. He was of the view that the restrictive covenant was clearly written and its consequences were understood by both parties. However, one has to wonder how the employee could have known what he was restricted from doing without the court telling him which restriction was going to be upheld.
It is uncertain how the courts in Alberta will deal with future cases. Further clarification is needed on this issue and more broadly on how, if ever, the court is to employ its "editorial pen" in considering restrictive covenants.
This update is a general overview of the subject matter and cannot be regarded as legal advice. Please contact Hugh McPhail at firstname.lastname@example.org, Tom Ross at email@example.com, Glenn Tait at firstname.lastname@example.org, or any member of our Labour & Employment Practice Group for advice on this or any other labour & employment law topic.