Recent appeal court decisions illustrate wisdom of reasonable restrictive covenants

25 Aug

The Ontario Court of Appeal issued a short endorsement in Crystal Tile and Marble Ltd. v. Dixie Marble & Granite Inc. on August 20th, upholding a judgment that dismissed a claim against a high-performing ex-salesperson. Presumably the salesperson was not bound by a restrictive covenant because the claim was based on an alleged breach of fiduciary duty and breach of confidence. The Court endorsed the following passage from the trial judgment:

The fact that the business decision to rely so heavily on Mr. Miskiewicz may have turned out to be a less than prudent one is not sufficient to brand Mr. Miskiewcz as a as a fiduciary when the other hallmarks of a fiduciary relationship, such as the power to make or influence management decisions or set corporate policy, are absent. To find otherwise would mean that every salesperson, regardless of his or her position or authority in the business, would have a fiduciary duty simply because of his or her success in sales.

This comment is reminiscent of those made recently in Imperial Sheet Metal Ltd. v. Landry and Gray Metal Products, a decision of the New Brunswick Court of Appeal. The Court held that cases (including some leading Ontario cases) that find salespeople to be fiduciaries based on a vulnerability arising from exposure to customers are wrong: “too many employees of ‘humble origin’ are being swept into fiduciary net.” It also held that knowledge of customer needs and preferences generally does not have the quality of confidence necessary to found an action for breach of confidence.

These cases are significant for their denouncement of the case commonly made against departing salespersons who are not bound by restrictive covenants. They’re reason for employers to carefully consider bargaining reasonable restrictive covenants at the outset of the employment relationship.

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