Non-Competition Clause: Less Is Better Than More

2001-01-01

NON-COMPETITIONCLAUSE:LESSISBETTERTHANMORE

By
HuguesG.Richard*
LEGERROBICRICHARD,Lawyers
ROBIC,Patent&TrademarkAgents
CentreCDPCapital
1001Square-Victoria-BlocE–8
thFloor
Montreal,Quebec,CanadaH2Z2B7
Tel.:(514)9876242-Fax:(514)8457874
www.robic.ca-info@robic.com
InarecentjudgementoftheSuperiorCourtoftheprovinceofQuebec,
districtofMontreal,bearingnumber500-05-056150-004,datedJuly12,2001,
HonorableJusticePierreJ.Dalphondrefusedtoissueanorderofpermanent
injunctionagainstnVidiaCorporationandoneofitsemployees,Mr.Dany
Lepage,forwhatthePlaintiffs,GraphiquesMatroxInc.andSystèmes
ÉlectroniquesMatroxLtée,consideredtobeunfaircompetitionpractices.
ThetwoPlaintiffs(MatroxGroup)aretwoCanadiancompanieslocatedin
Montreal.Theyspecialiseintheconception,developmentandsaleofdigital
technologies.nVidiaisaDelawarecompanyhavingitsprincipalplaceof
businessinSantaClara,California.Itoperatesabusinessindirect
competitionwiththeMatroxGroup.
Thecaseonthemeritsraisesmanyissues,butoneisofparticularinterestfor
thepurposeofthisarticle.MatroxGroupclaimedthatnVidiawasinducingits
managementlevelemployeestoterminatetheiremploymentcontractand
wasusingconfidentialinformationwhichbelongedtotheMatroxGroupwith
theintentiontodisrupttheirbusiness.
AninteriminjunctionhadbeenissuedenjoiningnVidia,itsagents,directors,
officersandemployeesnottoinduceorencourage,directlyorindirectly,any
employeesofMatroxGraphicsInc.orofSystèmesÉlectroniquesMatroxLtée
orformeremployeestobreachanyoftheirobligationsundertheir
confidentialityand/ornon-competitionagreementswithMatroxGraphicsInc.
orSystèmesÉlectroniquesMatroxLtée.ThecourthadrefusedtoenjoinnVidia
fromsolicitinganyemployeeorex-employeeofthePlaintiffs,eventhoughthe
courtwasspecificallyrequestedtoissueanorderinthatregard.

©LEGRROBICRICHARD,2000.*LawyerandTrademarkAgent,HuguesG.Richardisoneoftheseniorpartnersinthelawfirm
LEGERROBICRICHARD,g.p.andinthepatentandtrademarkagencyfirmROBIC,g.p.

Thecourtonthemeritsfoundthattherewasnodoubtthatinoursociety,
wherefreedomofspeech,includingcommercialspeech,isconstitutionally
protectedandwherecompetitionisseenasagarantyofeconomicand
socialprogress,anyemployerlookingformanpowerhastherighttospeakof
thejobopportunitiesitcanoffer,includinginnewspapers,radioandTV
mediasandontheInternet.Anemployerlookingforcandidatescanalsoat
informalorformalmeetingsshowaninterestforagivenperson,evenifthis
personhasajobwithathirdparty.Itcanalsomaketelephonecallstoany
personthatitconsidersqualified,evenifthispersonworksforsomebodyelse
ortousetheservicesof”head-hunters”todoso.
Whetherthesolicitationbyanemployerisdoneatlargeorindividually,itdoes
nothavetobechannelledtowardspersonsnothavingajobforthe
solicitationtobelegal.Thereisalsonodoubtthatanemployerwhoislooking
fornewemployeeshastherighttoconsideralltheoffersreceivedinanswer
toitssolicitations,includingthoseofferscomingfromemployeesalready
workingforanotheremployer.Toforbidtheconsiderationofcandidates
alreadyhavinganemploymentwouldlimitthepossiblemobilityofemployees
andwouldappeartobeagainstpublicorder.
Thecourtconsideredthatthenon-competitionagreement,ifitexistsandifit
isvalid,onlybindsthepartiesthathavesigneditandnotthirdparties.Athird
partyhowevercannotinduceanemployeetobreachhisobligationsunder
anemploymentcontract.Anorderinthatregardcouldonlyhavebeen
issuedifthecourtconsideredthatnVidiainducedandencouragedthe
employeesofthePlaintiffstobreachvalidnon-competitionundertakings.
Theexistenceofavalidnon-competitionclauseisessentialtoanyconclusion
totheeffectthatathirdpartyhasparticipatedinabreachofcontract,
beforeacourtcanissueapermanentinjunctioninthatregard.Suchan
exercisecanonlybemadeonanindividualbasis.Noordercanbeissuedat
large.
Non-competitionundertakings,eventhoughconsentedtofreelybythe
partiestoanagreement,havealwaysbeensubjecttothejudicialcontrol
undertheCommonLawofGreatBritainandCanada,basedonthefactthat
publicorderfavoursfreecompetition,freedomofbusinessorfreedomof
employment.Courtswillrefusetogiveeffecttosuchclauseswhentheyare
unreasonableunderthecircumstances.Thewillofthepartiesisthereforenot
sovereigninsuchmatters.ThecivillawoftheprovinceofQuebecrecognises
expresslythatcontractscannotbecontrarytopublicorder(article1411,Civil
CodeofQuebec)andtheeconomicframeworkofQuebecisthesameasin
therestofCanadaandsimilarastheoneprevailingintheUnitedKingdom;
therefore,thecourtsapplyingtheQuebeccivillawhavenothesitatedto

refertoBritishjurisprudencewhenaskedtodecideastothevalidityofnon-
competitionclauses.
Non-competitionclausescanbefoundinmanydifferenttypesofcontracts:
saleofabusinessagreements,transferofsharesagreements,franchise
agreements,distributionagreements,partnershipagreements,employment
contracts,etc..Eveniftheconceptsappliedinthesedifferenttypesof
contractsaresimilar,itiswellestablishedthattheattitudeofthecourtswill
varyaccordingtothenatureofthecontractwheretherestrictionlies.Inan
employmentcontract,ifthenon-competitionclauseisforanindefiniteperiod
oftime,theclausewillbeconsideredasrestrictingthefreedomof
employmentandthemobilityoftheemployee,itwillthereforbeconsidered
asrestrictingundulythefreedomoftheperson.
IntheprovinceofQuebec,article2089oftheCivilCodestatesthefollowing:
“Thepartiesmaystipulateinwritingandinexpresstermsthat,
evenaftertheterminationofthecontract,theemployee
mayneithercompetewithhisemployernorparticipateinany
capacitywhatsoeverinanenterprisewhichwouldthen
competewithhim.
Suchastipulationshallbelimited,however,astotime,place
andtypeofemployment,towhateverisnecessaryforthe
protectionofthelegitimateinterestsoftheemployer.
Theburdenofproofthatthestipulationisvalidisonthe
employer.”
Itfollowsfromthisarticlethatthereareconditionsofformwhichneedtobe
met:thenecessityofawrittenagreementthatmustspecificallydealwith
non-competition;thestipulationneedstobelimitedastotime,placeand
typeofemployment.Therearealsoconditionsofsubstancewhichneedto
bemet:thenon-competitionclausemustbenecessaryfortheprotectionof
thelegitimateinterestsoftheemployer.Theburdenofprovingthatanon-
competitionclauseisvalidistransferredtotheemployer.
Article2089cameintoforcewiththenewCivilCodein1994.The
jurisprudencepriortothatdatehastobeconsideredwithcaution.Priorto
1994,theemployeehadtheburdenofprovingtheinvalidityofthenon-
competitionclause.
ThisprocessissimilartotheoneapplicableundertheCanadianCharterof
RightsandtheQuebecCharterofRights,whereintheburdenofprooflies
withthepartyseekingtomaintainarestrictionofrightstodemonstratethat

therestrictionisreasonableandjustifiedunderthecircumstances.Anon-
competitionclauseinanemploymentcontractisarestrictionofpersonal
freedom.
Thecourtwentontoanalysethenon-competitionobligationsimposedonthe
DefendantLepage.Thecourtfoundthat,asfarastheconditionsofform
wereconcerned,thesehadnotbeensatisfiedsincetherestrictionsastothe
typeofworkweretoobroad,theterritorywasnotexpresslydescribedand
thedurationwasambiguous,becauseitmadereferencetodifferent
durationslettingthecourttodecidewhichdurationitconsideredreasonable
underthecircumstances.
Asforthesubstantiveconditions,theCourtheldthattheonlylegitimate
interestoftheemployerwhichwasallegedwastheprotectionofitstrade
secrets.Istheprotectionoftradesecretssufficienttojustifytheprohibitionto
workforacompetitor?ThePlaintiffssuggestthatitis,sincetheemployment
ofoneofitsex-employeesimpliesinevitablythedisclosureoftradesecrets.
TheCourtwasnotimpressedbythisargument.WithrespecttoMr.Lepage,
noproofwasmadeofaninevitableriskofdisclosureoftradesecretsfollowing
hisemploymentbynVidia.
Theevidencerevealedthatthemanufacturersofpersonalcomputerswant
newproductsonthemarketplaceapproximatelyeverysixmonthsandthat
theirsuppliers,suchasnVidiaorthePlaintiffs,constantlyneedtoimprovethe
solutionstheyoffer.ThePlaintiffs,intheirownstatementofclaim,statethat
theproductlifecycleisshortandislikelytoremainshortandthatthetimely
researchanddevelopmentofnewproductsisthereforeessential;success
dependsonlargepartonachieving”designwin”,whichentailshaving
existingandfutureproductschosenbypersonalcomputersOEMs.
Accordingtothecourt,aprohibitiontoworkfornVidiaforaperiodof
eighteenmonthsoreventwelvemonthsseemedexcessiveunderthe
circumstances.Thecourtalsofoundexcessivethefactthattheclausewould
applywhateverwerethereasonsfortheterminationoftheemployment
contract,whichwouldincludedismissalduetolackofworkwiththePlaintiffs
ortheabandonmentoftheprojectonwhichtheemployeewasworking.The
courtfoundevenmoreexcessivetheprohibitiontoworkfornVidiaevenin
areaswherenVidiaisnotincompetitionwiththePlaintiffs.
Insuchcircumstances,thenon-competitionclausewasdeclarednull
becauseitwasimprecisewithrespecttoitslength,toobroadwithrespectto
theprohibitedactivitiesandunreasonablewithrespecttotheinterestswhich
thePlaintiffscouldlegitimatelyprotect.Suchadeclarationdidnotleavethe
Plaintiffswithoutanyprotection.TheobligationsofloyaltyundertheCivil

Codestillapplyandcouldbesufficienttoadequatelyprotectthelegitimate
interestsofthePlaintiffsrelatingtotradesecrets.
ThisisoneofthefirstcasesdecidedundernewArticle2089oftheCivilCode
ofQuebec,wheretheshiftoftheburdenofproofontheshouldersofthe
employerhasworkedinfavouroftheemployee.Employerswishingto
imposenon-competitionobligationsontheiremployeesoncetheyterminate
theiremploymentmustbecarefulinthedraftingofthenon-competition
clause.Byimposingobligationswhicharetoobroadornotpreciselydefined,
theemployermayfinditselfwithaclausewhichisinvalid.Thecourtwillnot
rewritetheclause.Itwillonlydeclareitinvalid.Itisthereforerecommended
tohaveanon-competitionclausewhichfocusesontheimportantand
essentialaspectsofwhattheemployerwishestoprotect.Itisbettertoaim
forlessandhaveavalidnon-competitionclausethattoaimformoreandbe
caughtwithaclausewhichisinvalid.

ROBIC,ungrouped’avocatsetd’agentsdebrevetsetdemarquesdecommercevoué
depuis1892àlaprotectionetàlavalorisationdelapropriétéintellectuelledanstousles
domaines:brevets,dessinsindustrielsetmodèlesutilitaires;marquesdecommerce,marques
decertificationetappellationsd’origine;droitsd’auteur,propriétélittéraireetartistique,droits
voisinsetdel’artisteinterprète;informatique,logicielsetcircuitsintégrés;biotechnologies,
pharmaceutiquesetobtentionsvégétales;secretsdecommerce,know-howetconcurrence;
licences,franchisesettransfertsdetechnologies;commerceélectronique,distributionetdroit
desaffaires;marquage,publicitéetétiquetage;poursuite,litigeetarbitrage;vérification
diligenteetaudit;etce,tantauCanadaqu’ailleursdanslemonde.Lamaîtrisedes
intangibles.
ROBIC,agroupoflawyersandofpatentandtrademarkagentsdedicatedsince1892tothe
protectionandthevalorizationofallfieldsofintellectualproperty:patents,industrialdesigns
andutilitypatents;trademarks,certificationmarksandindicationsoforigin;copyrightand
entertainmentlaw,artistsandperformers,neighbouringrights;computer,softwareand
integratedcircuits;biotechnologies,pharmaceuticalsandplantbreeders;tradesecrets,
know-how,competitionandanti-trust;licensing,franchisingandtechnologytransfers;e-
commerce,distributionandbusinesslaw;marketing,publicityandlabelling;prosecution
litigationandarbitration;duediligence;inCanadaandthroughouttheworld.Ideaslivehere.
COPYRIGHTER
IDEASLIVEHERE
ILATOUTDEMÊMEFALLUL’INVENTER!
LAMAÎTRISEDESINTANGIBLES
LEGERROBICRICHARD
NOSFENÊTRESGRANDESOUVERTESSURLEMONDEDESAFFAIRES
PATENTER
R
ROBIC
ROBIC+DROIT+AFFAIRES+SCIENCES+ARTS
ROBIC++++
ROBIC+LAW+BUSINESS+SCIENCE+ART
THETRADEMARKERGROUP
TRADEMARKER
VOSIDÉESÀLAPORTÉEDUMONDE,DESAFFAIRESÀLAGRANDEURDELAPLANÈTE
YOURBUSINESSISTHEWORLDOFIDEAS;OURBUSINESSBRINGSYOURIDEASTOTHEWORLD

ROBIC,ungrouped’avocatsetd’agentsdebrevetsetdemarquesdecommercevouédepuis1892àlaprotectionet
àlavalorisationdelapropriétéintellectuelledanstouslesdomaines:brevets,dessinsindustrielsetmodèlesutilitaires;
marquesdecommerce,marquesdecertificationetappellationsd’origine;droitsd’auteur,propriétélittéraireet
artistique,droitsvoisinsetdel’artisteinterprète;informatique,logicielsetcircuitsintégrés;biotechnologies,
pharmaceutiquesetobtentionsvégétales;secretsdecommerce,know-howetconcurrence;licences,franchiseset
transfertsdetechnologies;commerceélectronique,distributionetdroitdesaffaires;marquage,publicitéet
étiquetage;poursuite,litigeetarbitrage;vérificationdiligenteetaudit;etce,tantauCanadaqu’ailleursdansle
monde.Lamaîtrisedesintangibles.
HUGUESHUGHESRICHARDHUGUESHUGHESRICHARDHUGUESHUGHESRICHARDHUGUESHUGHESRICHARD
ROBIC,agroupoflawyersandofpatentandtrademarkagentsdedicatedsince1892totheprotectionandthe
valorizationofallfieldsofintellectualproperty:patents,industrialdesignsandutilitypatents;trademarks,certification
marksandindicationsoforigin;copyrightandentertainmentlaw,artistsandperformers,neighbouringrights;
computer,softwareandintegratedcircuits;biotechnologies,pharmaceuticalsandplantbreeders;tradesecrets,
know-how,competitionandanti-trust;licensing,franchisingandtechnologytransfers;e-commerce,distributionand
businesslaw;marketing,publicityandlabelling;prosecutionlitigationandarbitration;duediligence;inCanadaand
throughouttheworld.Ideaslivehere.