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CCCA_V3No2_Col-MillerThom-FIN.qxd:CCCA_V1No2_Col-LabrEmpl-V1.qxd 4/27/09 5:43 PM Page 38 Legal Update – Miller Thomson LLP Draft non-comps with care! The SCC refuses to enforce an ambiguous non-competition agreement. n January 23, 2009, the Supreme Court The judge referred to the cross-exami- KRG argued that if the court was unwill- Oof Canada ruled in Shafron v. KRG nation of KRG’s principal, in which he ing to agree with the Court of Appeal that Insurance Brokers (Western) Inc., 2009 SCC 6, gave three different meanings for the term “Metropolitan City of Vancouver” should that the non-competition agreement con- “Metropolitan City of Vancouver” and be read to include the municipalities con- tained in Mr.Shafron’s employment contract testified that the phrase “means different tiguous to the City of Vancouver, the court was ambiguous in terms of its geographic things to different people.” On the basis of should apply “blue-pencil severance” and scope and was therefore unenforceable.The this and other evidence, the judge ruled remove the word “Metropolitan.”The court court also declined to “blue pencil” or that the language of the restrictive refused to do so because removing the word amend the parties’ bargain in order to cor- covenant was neither clear nor certain, and “Metropolitan” would leave only the “City rect the ambiguity. for this and other reasons dismissed the of Vancouver” as the restricted area. A non-competition agreement is one claim of KRG. Because the parties had clearly intended a of several types of restrictive covenants KRG also claimed that, independent of geographic reach that included more than commonly used in employment agree- his contractual commitment, Shafron had the City of Vancouver, it could not be said ments and in agreements for the purchase breached the fiduciary and equitable obli- that the parties would have“unquestionably” and sale of a business.The three compo- gations he owed KRG at common law to agreed to remove the word “Metropolitan” nents of a non-competition clause are:the refrain from using KRG’s confidential without adjusting some other term of their type of activity or competition that is information and soliciting its clients. The bargain. For that reason, blue-pencil sever- prohibited, the period of time during trial judge found that Shafron was not a ance was not available in law. which the activity is prohibited, and the fiduciary and that he did not misuse con- Referring, ironically, to a B.C. Court of geographic area in which it is prohibited. fidential information belonging to KRG. Appeal decision, the Supreme Court stated The Court of Appeal reversed the trial that the courts will only apply blue-pencil Facts judge and held that the non-competition severance to expunge a part of the covenant In December 2000, Shafron left KRG and agreement was enforceable. It acknowl- if the obligation that remains can fairly be shortly thereafter began working as an edged that the term “Metropolitan City of said to be a sensible and reasonable obliga- insurance salesman for another insurance Vancouver”was ambiguous,but ruled it was tion in itself, such that the parties would agency in Richmond, British Columbia, a possible to apply the doctrine of “notional” unquestionably have agreed to it. city contiguous to Vancouver. The non- severance to construe that phrase to mean competition provision in his employment “the City of Vancouver and the municipalities Conclusion contract provided: contiguous to it” (emphasis added). On that The Shafron case is a reminder to employ- Shafron shall not, upon his leaving the interpretation, the covenant would cover ers and their counsel that care must be taken employment of [KRG] for any reason, save the City of Vancouver, the University of when drafting non-competition agreements and except for termination by [KRG] with- British Columbia Endowment Lands, the in the employment context. Poorly drafted out cause,for a period of three (3) years there- City of Richmond and the City of language may ultimately render the non- after, directly or indirectly, carry on, be Burnaby. The appeal court concluded that competition restriction unenforceable in employed in, or be interested in or permit his such a spatial restriction was reasonable and circumstances where, but for the ambiguity name to be used in connection with the busi- therefore enforceable. in the wording, the restriction would have ness of insurance brokerage which is carried on been enforceable. within the Metropolitan City of Vancouver. Supreme Court of Canada The trial judge dismissed KRG’s action The high court affirmed that in order for a David Rice is a member of the Labour and on the basis that the term “Metropolitan non-competition provision to be enforce- Employment Group of Miller Thomson LLP in City of Vancouver” was neither clear nor able, its terms must be unambiguous, and Vancouver. He provides advice to clients in employ- certain and that, in any event, the spatial that the onus is on the party seeking to ment law,labour relations,human rights and occupa- restriction was unreasonable. enforce the provision to show this. tional health and safety.(drice@millerthomson.com) 38 CCCA Canadian Corporate Counsel Association SUMMER 2009