In People Corporation v 2578649 Alberta Ltd., 2024 ABKB 711 (Romaine, J), the Alberta Court of King’s Bench refused injunctions related to non-compete and non-solicit clauses, but granted a 12 month non-solicitation injunction against a fiduciary employee.
This most significant aspect of this case is probably the fact that an employee was found to be a fiduciary despite that he did not have scope for the exercise of discretion or power, and was not one of the plaintiff’s decision makers.
Other important aspects of the decision include its affirming of principles around enforceability of restrictive covenants, and its analysis around what constitutes “confidential information”.
Facts
The following were some of the pertinent facts summarized by the Alberta Court of King’s Bench:
- The plaintiff People Corporation had brought its injunction application against its former employees before Justice Simard prior to the defendants filing their own evidence or completing cross-examination. That application was unsuccessful, but Justice Simard made it clear they could apply again after completing those steps. They did, and this summarized decision is the result
- Justice Romaine adopted all the facts that had previously been found by Justice Simard, without restating many of them, and added a few more
- The plaintiff People Corporation is an insurance broker
- The individual defendants are former employees of the plaintiff, who had sold their consulting business LQBC to the plaintiff and then worked for the plaintiff as employees
- Each of these employees signed on to various restrictive covenants. Some of these restrictive covenants were part of the sale transaction documentation, but some were contained in employment agreements. The ones at issue were in the employment agreements, because the non-competition and non-solicitation obligations in those had not yet expired
- One of the individual defendants, Jay Quinn, resigned from People, and started up a competing company called QAG. The other individual defendants resigned shortly thereafter and started working for QAG
- Some clients of People Corporation started switching over to QAG
- People Corporation brought an injunction application to attempt to stop QAG and its former employees from competing and soliciting under the terms of their employment contracts
- People Corporation also argued that some of the employees were fiduciaries of People Corporation and should have non-competition and non-solicitation restrictions for that reason as well
Analysis / Conclusion
Was Mr. Quinn a Fiduciary, and Were His Restrictive Covenants Reasonable?
The court found that, as Mr. Quinn was the President of People’s LQBC divisions before his employment ended, which is a senior executive position, he was a fiduciary employee.
The Court noted however that there was nothing preventing Mr. Quinn from competing with People.
The Court noted that to determine the strength of People’s case against Quinn, it first needed to determine whether the other restrictive covenants applicable to Mr. Quinn were considered part of his employment contract or part of the share purchase acquisition. The Court found that the restrictive covenants at issue were part of his employment agreement, despite that the employment agreement and share purchase agreement were signed on the same day:
[33] While the restrictive covenants in the RCA were linked to the Acquisition agreement, with recitals that state that it was a condition of People entering into the share purchase agreement that Mr. Quinn enter into the RCA, the recitals to the EEA do not include such a statement but merely state that “the Employee resigned as an officer and director of the Employer, and agreed to become employed by the Employer pursuant to the terms of this Agreement” (emphasis added). The obligations in the EEA were not assumed in the context of a commercial contract, as were the obligations in the RCA, but in the context of a separate employment agreement. The EEA also includes a provision that acknowledges that Mr. Quinn has “direct and indirect commercial relationships” with People and has thus given covenants in the context of the other relationships, but that the covenants in the EEA “are not intended to be overridden, restricted or amended” by the other covenants. In addition, the EEA contains an entire agreement clause that provides that it is “the entire agreement between the parties hereto with respect to the employment” of Mr. Quinn.
[34] Despite the fact that the agreements were signed on the same day, on their terms they relate to different purposes, are between different parties and include restrictive covenants with different termination dates.
The court found this despite that there was no unequal bargaining power between the parties:
[39] The “master agreement” with respect to Mr. Quinn’s employment is the EEA. While Mr. Quinn cannot be said to have been in an unequal position with respect to negotiation of the terms of the employment agreement, the restrictive covenants in the EEA are covenants in the restraint of trade in that they seek to deny Mr. Quinn’s right to exploit his knowledge and skills.
The Court found that analyzed in the employment context, the clause restricting solicitation of clients was overbroad and unreasonable because it included all “clients and “prospective clients” of People, which would cover any client their 2,700 employees sold products to.
People claimed Mr. Quinn used its confidential information, which it argued included “the primary contact person or people in charge of group benefits at these companies” and “information about their benefits plans”. The Court disagreed that this was confidential information:
[73] Business contact information is not confidential. By its very nature, such information is publicly and intentionally disseminated by the person and also the organizations for whom they work so that they can be contacted for business.
[74] By the same token, information about benefits plans is not confidential or proprietary to People. It is information that is known to the employer that acquires the benefit plan for its employees, known to, and available from, the insurers if the client authorizes disclosure of the information, and is widely disseminated by such clients to its own employees and prospective employees.
Was Mr. Patterson a fiduciary? If So, What Were His Restrictions?
The Judge in this case did not summarize all of the relevant facts, but indicated that the facts found by Applications Judge Simard were accurate. Applications Judge Simard had noted that Patterson was a sales consultant, and the person who is the “lead individual on the account and is responsible for the overall relationship with the client”.
The Court summarized the typical tests for fiduciary status set out in O’Malley and Frame v Smith which set out that fiduciaries normally have discretion to exercise power unilaterally and the beneficiary (employer) is normally particularly vulnerable to that power.
The Court went on to clarify that a fiduciary is usually a “key employee”, but it is the substance of the position rather than the title that matters – those with control and decision-making functions are often key employees / fiduciaries.
The Court noted that Mr. Patterson did not have scope for exercise of discretion, the ability to unilaterally exercise power, or involvement in the decision-making process. However, the Court nevertheless concluded there was a strong prima facie case that he was an ad hoc fiduciary employee. The following was the pertinent reasoning:
[99] […] Alberta Courts have recognized that the vulnerability of the employer to unfair competition by the employee can give rise to an ad hoc fiduciary relationship:
Where an employer by the nature of his business is particularly vulnerable to loss by soliciting of his clients’ business, a senior employee stands in a fiduciary relationship to his employer and, whether or not he takes with him customer lists and other employer’s property, he owes a duty to the employer not, after leaving his employ, to solicit his clients’ business […]
[100] A broader approach to when an employee may be found to be a fiduciary is found in Edgar T. Alberts v Mountjoy, […]. In that case, it was suggested that:
…a fiduciary is not to be defined by the position held by the employee, but rather by the relative strength of the relationship between the employer’s customers and the former employee. The more likely it is that the customer will follow the employee, rather than remain with the employer, the easier it is to sustain the allegation that the former employee is a fiduciary – so the reasoning goes.
[101] Alberts has been criticized for this approach, as this definition results in many more “humble” employees falling within an overly broad definition of fiduciary.
[102] This approach appears to be confined to the insurance brokerage business where the relationships between brokers and clients are perceived to be delicate and sensitive. [underline added]
[103] However, the Court in HRC Tool & Die recognized the policy issues inherent in a broad concept of fiduciary relationships in an employer-employee relationship context: paras. 30-35.
[104] The Court noted that the Supreme Court had observed in Elder Advocates of Alberta Society v Alberta, 2011 SCC 24 that, “[a]s useful as the three “hallmarks” referred to in Frame are in explaining the source fiduciary duties, they are not a complete code for identifying fiduciary duties” […]
[…]
[108] I note that Mr. Patterson reviewed and acknowledged People’s Code of Business Conduct and Ethics, which included an express requirement to act in the best interests of People which can be argued is an undertaking to act in the best interests of an employer.
The Court rejected People’s request for a raft of restrictions to be imposed against Mr. Patterson, instead only imposing an obligation not to solicit clients for a “reasonable time”. In this case, the Court decided a reasonable time was 1 year from the date he left his employment.
Was Ms. Metez a fiduciary?
The Court considered whether another one of the individual defendants, Ms. Metez, was a fiduciary, and found that she was not. The analysis was as follows:
[114] Applying the Frame hallmarks to Ms. Metez to determine whether she was a fiduciary with respect to People, rather than merely to her clients, leads me to find that she was not a fiduciary of People. She had relationships with far fewer clients than Mr. Patterson. If all of the People salespersons were considered to be fiduciaries by virtue of their relationships with clients, about half of the People workforce in Calgary would be considered fiduciaries, an unwarranted expansion of the concept of fiduciary status with attendant onerous obligations to ordinary employees. Ms. Metez had little, if any, scope for the exercise of discretion or power. Ms. Metez did not give any undertaking to act in People’s best interest. There is no serious issue to be tried with respect to Ms. Metez.
My Take
This case has wins for both employee rights and employer rights:
- The conclusion that the non-competition and non-solicitation covenants contained in these employment agreements were to be analyzed in the employment context and not the commercial context is a win for employees – because analyzing them in the employment context makes them much harder to enforce, and the circumstances of when these employment agreements were entered into might reasonably have led the court to consider them in the commercial context
- The conclusion that business contact information was not confidential information in this case is a win for employees
- The conclusion that Mr. Patterson was an ad hoc fiduciary despite not having discretionary power or decision making power is a win for employers.
I do want to point out that any comments the Court made in this case about the policy value of expanding the class of people who might be considered fiduciaries, is arguably obiter, because the Court acknowledged that the “Alberts approach” it relied on “appears to be confined to the insurance brokerage business”, which is the industry People and the defendants are engaged in.
In any event, on the issue of fiduciary status, this case is still certainly a win for employers.
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