In Southwest Design & Construction Ltd v Janssens, 2024 ABKB 502 (Bourque), a former employer was unable to get an injunction preventing former employees from bidding on projects they became aware of during their employment.
This case illustrates that it can be challenging to get an injunction limiting the business activities of former employees.
Facts
The following were some of the pertinent facts summarized by the Alberta Court of King’s Bench:
- The Plaintiff / Applicant was Southwest Design, a manufacturer of steel structures such as grain bins and Quonset buildings
- The Defendants were former employees of Southwest Design and their new company called Elevate Construction Partners (“Elevate”). The main individual employee defendants were Blayne Janssens and David Mathieu, but there were a number of other more junior employee Defendants
- Mathieu had been construction manager. His job duties had included organizing construction sites for crews and ability to sign off for supplies and rental equipment, but he had no signing or banking authority or ability to sign off on major projects
- Janssens had been the second-in-command at Southwest. He had authority to sign cheques without the owner’s approval, and enter contracts on Southwest’s behalf. He oversaw the business in Lethbridge and had limited oversight elsewhere
- Janssens and Mathieu had been in negotiations to buy Southwest, but those fell through. They ended up resigning and starting Elevate. They told several employees they were leaving before they resigned, and several of those employees joined them. Prior to resigning they engaged in some start up activities like incorporating, setting up bank accounts, discussing logos, inquiring about insurance, discussing who business partners would be and discussing the name of the venture
- Elevate ended up doing work for several several of Southwest’s clients after Janssens and Mathieu left, including on some jobs they were aware of prior to departure. Elevate was also alleged to have sent an introductory email to several of Southwest’s clients
- Southwest sued Elevate, Janssens, Mathieu and other former employees, alleging breach of fiduciary duty, breach of duty of good faith and loyalty (including employee solicitation), and misuse of business opportunities
- In this application, Southwest was seeking an injunction: (1) Preventing Elevate from bidding on projects they bid on or knew about when at Southwest, and (2) Preventing Elevate from soliciting clients and employees till September 2025 (more than 1 year).
Analysis / Conclusion
Justice Bourque first considered if Southwest had a strong prima facie case that Mathieu or Janssens were fiduciaries of Southwest. He found that Southwest did not have a strong prima facie case regarding Mathieu’s status as a fiduciary, but did have one regarding Janssens, as follows:
[24] […] No doubt Mathieu was essential or “important to the smooth and profitable functioning” of Southwest, but that does not make him a fiduciary […]. At this stage, I cannot find a strong prima facie case that Mathieu has actual authority or sufficient control over Southwest’s operation to make him a fiduciary of Southwest. Accordingly, Southwest has not shown a strong prima facie case that Mathieu is a fiduciary.
[…]
[27] Janssens was a key employee and Keck’s second-in-command. He had the authority to sign cheques and enter contracts to bind Southwest. Having reviewed the extensive affidavits and questioning transcripts, and although the matter is not free from doubt, I find that Southwest has established a strong prima facie case that Janssens was a fiduciary.
Justice Bourque found that there was not a strong prima facie case that the Elevate start up activities of Janssen and Mathieu before leaving Southwest violated their common law duty of loyalty to Southwest, noting as follows:
[30] […] I agree with Justice Graesser that “it would be contrary to public policy, and contrary to common sense, to prohibit a fiduciary from contemplating leaving and working for the competition while still employed,” provided they are fulfilling their employment obligations […]. On the latter point about fulfilling employment obligations, Keck confirmed in questioning that there were no performance issues for any of the Respondents and that they had fulfilled their work responsibilities to the date they left.
[31] Moreover, the facts and circumstances here are significantly different than in CRC-Evans […]: Southwest has not demonstrated a strong prima facie case, or at all, that the Respondents betrayed duties owed by them to Southwest, that before leaving Southwest, the Respondents did not make decisions in Southwest’s best interests, that during that time the Respondents planned to go after customers normally serviced by Southwest or that they planned to bid on projects on which they had bid on behalf of Southwest.
Regarding improper employee solicitation, the Court found there was a strong prima facie case that Mathieu had breached his duty of loyalty when, while still employed, he took some a group of employees from Southwest out for drinks, told them he was starting a business and to let him know if they were interested in joining. He had brought resignation letters for the employees to sign to the meeting and provided them with information about Elevate’s profit sharing. Finally, he told them to keep the meeting secret.
Regarding the alleged misuse of business opportunities, the Court found that Elevate had sent an introductory email to clients, had done work for previous clients, and – at a client request – Janssens submitted a bid on a project that he had submitted a bid on while at Southwest. The Court found there was not a strong prima facie case on misuse of business opportunities.
The Court ultimately concluded that although there was a strong prima facie case on improper solicitation of employees, there would be no injunction granted in this case because there was no evidence there would be irreparable harm if no injunction were granted, and the “balance of convenience” did not favor an injunction. The Court also noted that the period sought for non-solicitation was longer than would be appropriate in any event.
My Take
This case illustrates how hard it is to obtain an injunction restricting the activities of former employees.
However, employees should not take this to suggest that their activities are unrestricted or that they do not have significant potential liability when setting up competing businesses. Even in this case, the solicitation of the other employees prior to leaving to join Elevate could ultimately result in significant liability if Southwest can show that the mass departure caused it financial harm. We will not know if that liability comes to pass unless this matter goes to a trial on the merits in the future.
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