Atlantic Business Interiors Ltd. v. Hipson et al., 2005 NSCA 16

• Judge: Roscoe, Freeman and Fichaud, JJ.A.
• Court: Court of Appeal of Nova Scotia (Canada)
• Case Date: February 01, 2005
• Jurisdiction: Nova Scotia
• Citations: 2005 NSCA 16;(2005), 230 N.S.R.(2d) 76 (CA)

Atlantic Business Interiors v. Hipson (2005), 230 N.S.R.(2d) 76 (CA);

 729 A.P.R. 76

MLB headnote and full text

Temp. Cite: [2005] N.S.R.(2d) TBEd. FE.028

Atlantic Business Interiors Limited (appellant) v. Scott Hipson and MMP Office Interiors Inc. (respondents)

(CA 220827; 2005 NSCA 16)

Indexed As: Atlantic Business Interiors Ltd. v. Hipson et al.

Nova Scotia Court of Appeal

Roscoe, Freeman and Fichaud, JJ.A.

February 1, 2005.

Summary:

The defendant salesperson left his employment with the plaintiff in 1998 to work for the plaintiff's competitor. A restrictive covenant in the defendant's employment contract prohibited him from working for a competitor or soliciting the plaintiff's clients anywhere in Nova Scotia for 12 months. One of the plaintiff's major clients ($900,000 per year worth of sales), dealt primarily with the plaintiff and was serviced solely by the defendant. The client took the majority of its business to the defendant at his new employment. The plaintiff sued the defendant and competitor for damages for breach of the restrictive covenant and breach of fiduciary duty. The defendant challenged the enforceability of the restrictive covenant and counterclaimed for general and punitive damages, claiming that he had not resigned, but had been constructively dismissed by a unilateral change in his commission structure.

The Nova Scotia Supreme Court, in a judgment reported (2004), 221 N.S.R.(2d) 304; 697 A.P.R. 304, dismissed both the action and the counterclaim. The restrictive covenant was unreasonable and unenforceable. The defendant owed the plaintiff a fiduciary duty, but did not breach that duty where he did not solicit the client's business. Since the plaintiff had the contractual right to vary the defendant's compensation package, the defendant was not constructively dismissed. Further, the plaintiff's conduct in withdrawing the defendant's last pay cheque from his account (replaced before trial) was not so egregious as to warrant punitive damages. The plaintiff appealed.

The Nova Scotia Court of Appeal dismissed the appeal.

Contracts - Topic 6732

Illegal contracts - Contrary to public policy - Restraint of trade - Agreements not to compete - The defendant's employment contract contained a restrictive covenant prohibiting him, after leaving his employment, from working for a competitor or soliciting business from the plaintiff's clients for a period of 12 months anywhere in Nova Scotia - The trial judge held that the non-solicitation provision was reasonable and was sufficient to protect the plaintiff's legitimate interests in its clients - The territory and time protected (Nova Scotia and 12 months) were both reasonable - However, the non-competition provision, which was designed to keep the defendant out of the industry generally, was unreasonable - The non-solicitation provision was sufficient to protect the plaintiff's legitimate interests - Since the court could not "write down" excessively broad restrictive covenants (sever unreasonable provisions), the entire restrictive covenant (including the non-solicitation provision) was unenforceable - The Nova Scotia Court of Appeal affirmed the decision on the basis that the trial judge met the standard of correctness in law and did not commit any palpable or overriding error in determining the facts or inferences from those facts - See paragraphs 24 to 33.

Equity - Topic 3648

Fiduciary or confidential relationships - Breach of fiduciary relationship - By employee - Solicitation of business - The defendant salesperson left his employment with the plaintiff in 1998 to work for the plaintiff's competitor - One of the plaintiff's largest clients ($900,000 per year in sales), serviced solely by the defendant, followed the defendant and gave the majority of its business to the competitor - The plaintiff sued for damages, alleging breach of a fiduciary duty not to solicit its clients - The trial judge held that the defendant owed the plaintiff a fiduciary duty because he was placed in a position of trust and confidence to nurture and maintain the trade connection between the plaintiff and the client - Accordingly, the defendant owed a fiduciary duty not to solicit the client's business upon moving to a competitor - However, even though the client knew the defendant was changing employment, there was no breach of fiduciary duty where the evidence did not establish that the defendant actively solicited the client's business, as opposed to hoping that the client directed business to the competitor - The primary reason for the client giving the competitor business was the client's dependency on and familiarity with the defendant - The client moved its business on its own initiative, not as a result of solicitation - The Nova Scotia Court of Appeal affirmed the decision on the basis that the trial judge met the standard of correctness in law and did not commit any palpable or overriding error in determining the facts or inferences from those facts - See paragraphs 44 to 59, 70 to 116.

Equity - Topic 3726

Fiduciary or confidential relationships - The employer-employee relationship - Duty of employee after termination - [See Equity - Topic 3648 ].

Master and Servant - Topic 343

Fiduciary duty - When owed - [See Equity - Topic 3648 ].

Master and Servant - Topic 1312

Contract of hiring (employment contract) - Covenants in restraint of trade - Restrictive covenants - Severability - [See Contracts - Topic 6732 ].

Master and Servant - Topic 1324

Contract of hiring (employment contract) - Covenants in restraint of trade - Restrictive covenants - Whether reasonable - Interest protected - [See Contracts - Topic 6732 ].

Master and Servant - Topic 4307

Duties of servant - On termination - Competition in business - Solicitation of clients of former employer - [See Equity - Topic 3648 ].

Master and Servant - Topic 7502

Dismissal of employees - General principles - What constitutes dismissal or discharge (incl. constructive dismissal) - The defendant's compensation package was changed by the employer on one month's notice by increasing his base salary and reducing his commissions - Eleven months later, the defendant resigned and went to work for a competitor - The defendant alleged that the unilateral change in his compensation package constituted constructive dismissal - The trial judge held that the defendant was not constructively dismissed where his employment contract specifically authorized the employer to vary the compensation package - Accordingly, it was unnecessary to determine whether the defendant had accepted or condoned the compensation change by continuing his employment for 11 months - The Nova Scotia Court of Appeal agreed - See paragraphs 61 to 69.

Cases Noticed:

Housen v. Nikolaisen et al. (2002), 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 211 D.L.R.(4th) 577 (S.C.C.), refd to. [para. 9].

Hodgkinson v. Simms et al., [1994] 3 S.C.R. 377; 171 N.R. 245; 49 B.C.A.C. 1; 80 W.A.C. 1, refd to. [para. 10].

J.G. Collins Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, refd to. [para. 26].

Lyons v. Multari (2000), 136 O.A.C. 281; 50 O.R.(3d) 526 (C.A.), refd to. [para. 26].

Vorvis v. Insurance Corp. of British Columbia, [1989] 1 S.C.R. 1085; 94 N.R. 321, refd to. [para. 67].

Westworld Warranty Inc. v. National Trust Co. et al. (1999), 123 O.A.C. 193 (C.A.), refd to. [para. 77].

Roe, McNeill & Co. v. McNeill et al. (1998), 104 B.C.A.C. 20; 170 W.A.C. 20 (C.A.), refd to. [para. 77].

Huff v. Price (1990), 51 B.C.L.R.(2d) 282 (C.A.), refd to. [para. 89].

Authors and Works Noticed:

Ellis, Mark Vincent, Fiduciary Duties in Canada (1993) (Looseleaf), p. 16-1 [para. 44].

Fridman, Gerald Henry Louis, The Law of Contract in Canada (4th Ed. 1999), pp. 581, 582 [para. 24].

Counsel:

Peter Bryson, Q.C., and Cheryl Hodder, for the appellant;

Lisa Gallivan and David Farrar, for the respondents.

This appeal was heard on December 9, 2004, at Halifax, N.S., before Roscoe, Freeman and Fichaud, JJ.A., of the Nova Scotia Court of Appeal.

On February 1, 2005, Freeman, J.A., delivered the following judgment for the Court of Appeal.