Guay Inc. v. Payette et al., (2013) 448 N.R. 1 (SCC)

• Judge: McLachlin, C.J.C., LeBel, Fish, Rothstein, Cromwell, Karakatsansis and Wagner, JJ.
• Court: Supreme Court (Canada)
• Case Date: September 12, 2013
• Jurisdiction: Canada (Federal)
• Citations: (2013), 448 N.R. 1 (SCC);2013 SCC 45

Guay Inc. v. Payette (2013), 448 N.R. 1 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2013] N.R. TBEd. SE.004

Yannick Payette and Mammoet Canada Eastern Ltd., successor to Mammoet Crane Inc. (appellants) v. Guay inc. (respondent)

(34662; 2013 SCC 45; 2013 CSC 45)

Indexed As: Guay Inc. v. Payette et al.

Supreme Court of Canada

McLachlin, C.J.C., LeBel, Fish, Rothstein, Cromwell, Karakatsansis and Wagner, JJ.

September 12, 2013.

Summary:

In 2004, a corporation (Guay) purchased the assets of a competitor corporation (Groupe Fortier), which was controlled by Payette and his partner. The contract included a provision that Payette and his partner would work for Guay for six months, with the option of the parties agreeing on a subsequent employment contract. The commercial contract provided that Payette and his partner were bound by non-competition and non-solicitation clauses. Upon cessation of employment, the non-competition and non-solicitation clauses (restrictive covenants) applied to all of Quebec for five years. After the six month term, Payette was employed by Guay under an employment contract until he was terminated without "serious reason" in 2009. In 2010, Payette commenced employment with another of Guay's competitors (Mammoet Crane). A few days later, Guay lost seven experienced employees to Mammoet Crane. Guay sought an interlocutory injunction to require Payette to comply with the non-competition clause by not working for Mammoet Crane.

The Quebec Superior Court granted the requested interlocutory injunction, but subsequently denied a permanent injunction on the merits. The court ruled that the restrictive covenants were linked to the employment contract, not the contract for the sale of the business assets. Accordingly, art. 2095 of the Civil Code of Quebec applied to preclude Guay from relying on the non-competition clause where Payette was dismissed "without reason". Alternatively, if art. 2095 did not apply, the non-competition clause was unlawful. Although the five year term was reasonable, the territory was too broad (included all of Quebec whereas Groupe Fortier did business "mostly" in Montreal). Guay appealed.

The Quebec Court of Appeal allowed the appeal and granted a permanent injunction precluding Payette from breaching the non-competition clause. The restrictive covenants were linked to the commercial contract, not the employment contract. Accordingly, art. 2095 did not apply to preclude Guay from relying on it. The court disagreed that the restrictive covenants were unlawful. The geographic scope of the non-competition clause (all of Quebec, not just Montreal), was both necessary and reasonable to protect Guay's business interests in a highly mobile business (crane rental). Payette and Mammoet Crane appealed.

The Supreme Court of Canada dismissed the appeal. The restrictive covenants related to the 2004 sale agreement, not the employment contract. The protections of art. 2095 did not apply. In the commercial context, Payette failed to establish that the restrictive covenants were unreasonable.

Contracts - Topic 6732

Illegal contracts - Contrary to public policy - Restraint of trade - Agreements not to compete or solicit - The Supreme Court of Canada referred to the distinction between the scope of a restrictive covenant (non-competition or non-solicitation clause) linked to a commercial agreement (sale of business) and a restrictive covenant linked to a contract of employment: "the distinction made in the cases between a restrictive covenant contained in an agreement for the sale of a business and one contained in a contract of employment is well-conceived and responsive to practical considerations. A person seeking to sell his business might find himself with an unsaleable commodity if denied the right to assure the purchaser that he, the vendor, would not later enter into competition. Difficulty lies in definition of the time during which, and the area within which, the non-competitive covenant is to operate, but if these are reasonable, the courts will normally give effect to the covenant. A different situation, at least in theory, obtains in the negotiation of a contract of employment where an imbalance of bargaining power may lead to oppression and a denial of the right of the employee to exploit, following termination of employment, in the public interest and in his own interest, knowledge and skills obtained during employment." - See paragraph 5.

Contracts - Topic 6732

Illegal contracts - Contrary to public policy - Restraint of trade - Agreements not to compete or solicit - In 2004, Guay Inc. purchased the assets of a competitor (Groupe Fortier), which was controlled by Payette and his partner - The agreement provided that Payette and his partner would work for Guay for six months, with the option of future contractual employment - The agreement provided that Payette and his partner were bound by non-competition and non-solicitation clauses (restrictive covenants) - Upon cessation of employment, the restrictive covenants applied to all of Quebec for five years - Payette was later employed by Guay under an employment contract - He was terminated without "serious reason" in 2009 - In 2010, Payette commenced employment with another of Guay's competitors (Mammoet Crane) - Guay sought injunctive relief to require Payette to comply with the non-competition clause - The Supreme Court of Canada affirmed that Payette was bound by the restrictive covenants - If the restrictive covenants were linked to the employment contract, not the 2004 sale agreement, art. 2095 of the Civil Code of Quebec applied to preclude Guay from relying on the restrictive covenants where Payette was dismissed "without reason" - The restrictive covenants related to the 2004 agreement, not the employment contract, so the protection of art. 2095 did not apply - The court stated "the ordinary meaning of the words used and the circumstances of the agreement support the argument that the covenants were made in relation to the sale of the assets" - Payette failed to discharge the burden of establishing that the covenants were unreasonable on the application of commercial law criteria - The non-competition clause was reasonable as to term and territory - The $29 million agreement followed lengthy negotiations between well-informed business people on an equal footing, who were advised by legal and accounting professionals - Five years was not unreasonable - In light of the unique nature of the mobile crane rental industry, the territory involved (all of Quebec rather than just Montreal) was not unreasonable - The lack of a territorial limit in the non-solicitation clause did not render it unreasonable - The court noted that "in the context of the modern economy, and in particular new technologies, customers are no longer limited geographically, which means that territorial limitations in non-solicitation clauses have generally become obsolete" - See paragraphs 35 to 75.

Contracts - Topic 6732

Illegal contracts - Contrary to public policy - Restraint of trade - Agreements not to compete or solicit - The Supreme Court of Canada stated that "in a commercial context, a non-competition covenant will be found to be reasonable and lawful provided that it is limited, as to its term and to the territory and activities to which it applies, to whatever is necessary for the protection of the legitimate interests of the party in whose favour it was granted. ... The factors that can be taken into consideration include the sale price, the nature of the business's activities, the parties' experience and expertise and the fact that the parties had access to the services of legal counsel and other professionals" - See paragraph 61.

Master and Servant - Topic 1323

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

Master and Servant - Topic 1326

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

Quebec Obligations - Topic 3588

Effect of obligations - Restrictive covenants - Whether reasonable, consideration giving rise to covenant - [See second Contracts - Topic 6732 ].

Quebec Obligations - Topic 3615

Effect of obligations - Restrictive covenants - Reasonable covenants - Examples - [See second Contracts - Topic 6732 ].

Cases Noticed:

Collins (J.G.) Insurance Agencies Ltd. v. Elsley's Estate, [1978] 2 S.C.R. 916; 20 N.R. 1, refd to. [para. 5].

KRG Insurance Brokers (Western) Inc. v. Shafron et al., [2009] 1 S.C.R. 157; 383 N.R. 217; 265 B.C.A.C. 1; 446 W.A.C. 1; 2009 SCC 6, refd to. [para. 35].

Doerner, Doerner and Doerner v. Bliss & Laughlin Industries Inc. et al. and Northfield Metal Products Ltd., [1980] 2 S.C.R. 865; 34 N.R. 168, refd to. [para. 35].

Groupe Québécor Inc. v. Grégoire (1988), 15 Q.A.C. 113 (C.A.), refd to. [para. 53].

Burnac Corp. v. Les Entrepris Ludco ltée, [1991] R.D.I. 304 (Que. C.A.), refd to. [para. 58].

Copiscope Inc. v. TRM Copy Centers (Canada) Ltd., 1998 CanLII 12603 (Que. C.A.), refd to. [para. 61].

Yvon Beaulieu Well Drilling Ltée v. Marcel Beaulieu Puits Artésiens Ltée, [1992] R.J.Q. 2608 (Sup. Ct.), refd to. [para. 63].

Allard v. Cloutier (1919), 29 B.R. 565, refd to. [para. 63].

Trans-Canada Thermographing (Ontario) Ltd. v. Trans-Canada Thermographing Ltd. (1992), SOQUIJ AZ-92021644 (Sup. Ct.), refd to. [para. 63].

Papeterie L'Écriteau inc. v. Barbier, [1998] J.Q. No. 5090 (Sup. Ct.), refd to. [para. 63].

World Wide Chemicals Inc. v. Bolduc, 1991 CarswellQue 1157, refd to. [para. 73].

Moore Corp. v. Charette (1987), 19 C.C.E.L. 277 (Que. Sup. Ct.), refd to. [para. 73].

Authors and Works Noticed:

Béliveau, Nathalie-Anne, and LeBel, Sébastien, Les clauses de non-concurrence en matière d'emploi et en matière de vente d'enterprise: du pareil au même?, in Service de la formation continue du Barreau du Québec, vol. 338, Développements récents en droit de la non-concurrence (2011), p. 182 [para. 65].

Benaroche, Patrick L., La non-solicitation: paramètres juridiques applicables en matière d'emploi, in Service de la formation continue du Barreau du Québec, vol 289, Développements récents en droit de la non-concurrence (2008), pp. 193, 200 [para. 72].

Bich, Marie-France, La viduité post-emploi: loyauté, discrétion et clauses restrictives, in Service de la formation permanente du Barreau du Québec, vol. 197, Développements récents en droit de la propriété intellectuelle (2003), p. 243 [para. 70].

Québec, Ministère de la Justice, Commentaires du ministre de la Justice: Le Code civil du Québec - Un mouvement de société (1993), vol. 2, p. 1317 [para. 41].

Counsel:

Éric Hardy, Pierre Duquette and Vincent Rochette, for the appellants;

Mario Welsh, Gilles Rancourt and Gwenaelle Thibaut, for the respondent.

Solicitors of Record:

Norton Rose Fullbright Canada, Québec, Quebec, for the appellants;

Heenan Blaikie Aubut, Québec, Quebec, for the respondent.

This appeal was heard on January 23, 2013, before McLachlin, C.J.C., LeBel, Fish, Rothstein, Cromwell, Karakatsanis and Wagner, JJ., of the Supreme Court of Canada.

On September 12, 2013, Wagner, J., delivered the following judgment in both official languages for the Court.