This post was contributed by Jean R. Allard, Partner, Norton Rose Canada
In a recent Quebec Court of Appeal decision,[1] the court reversed a decision of all previous courts in a case regarding unfair termination for refusal to sign a non-compete agreement three years after the hiring date.
In this case, the employer, a pharmaceutical company, had recruited a chemist who lived in France.
The offer to the employee said he’d be asked to sign a non-compete agreement and a confidentiality agreement. However—and unfortunately for the employer—, only the confidentiality agreement was signed on the employee’s first day of work.
A few years later, after promoting the employee to director, the employer asked the employee to sign a non-compete agreement. The employee decided he wouldn’t sign the agreement unless the employer compensated him with a large sum of money and respected his demands on the duration of and territory covered by the non-compete clause.
The parties could not reach an agreement and the employer told the employee he would be fired unless he agreed to add the non-compete agreement to his employment contract.
When the employee refused to sign the non-compete agreement, the employer terminated him. The employee then responded with an unfair termination complaint under the Labour Standards Act.
On top of the fact that the court found the proposed covenant didn’t have a limited territory since it covered the whole world, the court concluded the termination was not for cause since the employee rightly refused to add a non-compete agreement he had not agreed to before his employment started.
This is not only a lesson for all employers with key employees, but also for potential buyers who find in their due diligence that key employees don’t have non-compete agreements in their employment contracts.
This case shows it might be quite difficult to add a non-compete agreement to ongoing employment contracts.
[1] Jean c. Omegachem inc., (C.A.), AZ-50828197
