November 15, 2022

By Brian Babcock

THE ISSUE

Unless a submission to arbitration provides otherwise, the Arbitration Act, 1991 only mandates a right to apply for leave to appeal on questions of law. The application of the law to facts is not a question of law. For leave to appeal to be granted, the issue must also be one which will “significantly affect the rights of the parties”.

How does this affect the enforceability of a non-solicitation clause in the employment contract of a former employee?

Although the recent amendments to the Employment Standards Act, 2000 prohibit non-compete agreements in most employment contracts, the definition of “non-compete agreement” in the Act does not including non-solicitation agreements. Therefore, we expect to continue to see non-solicitation agreements and more disputes under them, since that may be the only option for employers to protect their business.

THE CASE

This makes the Superior Court case of PureFacts Financial Solutions Inc.et al. v. Cheung et al. of greater interest than most appeals from arbitration.

According to the applicant for leave to appeal the arbitration, the legal issue was the definition of “solicitation” and “breach of confidence”, and the error would have a significant impact upon their business and was important enough to grant leave.

The arbitrator found that “the simple fact of responding to the RFP” did not breach the former employees’ non-solicitation clauses. In doing so, the arbitrator made findings of fact that:

  • there was no evidence of any contact between the customer and the former employees prior to the invitation to participate in the RFP;
  • accepted the evidence of the defendants that the defendants had no contact with CPSA prior to the invitation;
  • no evidence was presented to suggest that PureFacts would have made the shortlist had the former employees’ new company not been invited to present further; and
  • found that the evidence was “simply insufficient to support the conclusions that but for the RFP bid” by the defendants, PureFacts would have been successful.

The arbitrator also considered the issue of “breach of confidence” and found that it was not a breach for the former employees to use lower hourly rates than they knew PureFacts used, or that they incorporated “very limited material” from other PureFacts work in their bid.

If the employer wishes to prevent an activity by a former employee, it must do so with specific and clear language. This is consistent with the general principle that restrictive covenants in employment agreements are restraints in trade and are presumed to be void as against public policy unless they are necessary to protect the employer’s interests. As a result, courts have consistently interpreted any ambiguity or uncertainty as to the meaning of a clause in favour of the employee or former employee.

The applications judge distinguishes between solicitation, which is asking for or inviting a former customer to do business with you, and responding to an invitation from that former customer to supply a bid. Responding to the invitation does not fall within the legal definition of solicitation. On the issue of the definition of solicitation, the judge relied on an earlier Ontario Court of Appeal decision that suggests that the submission of bids in response to tenders or RFP’s does not qualify as direct or indirect soliciting. Therefore, the former employees’ actions did not breach the non-solicitation clause.

The judge agreed that the arbitrator’s decision was based upon findings of fact and was not an error of law.

This determination by the judge is consistent with the approach the courts typically take on leave to appeal applications. Because the courts do not want to be flooded with appeals in which they are simply asked to retry findings of fact, they tend to take a very strict interpretation as to the meaning of “error in law”.  Even matters of interpretation of the facts and their application to the law, such as the issue of the use of the hourly rates, is not an error of law. As to the use of some PureFacts materials, the judge agreed with the arbitrator that this was a mixed question of fact and law. Only pure questions of law are appealable.

The judge disposed of the breach of confidence argument in a similar way, but this was a mixed question of fact and law. Frankly, the arbitrator’s finding here was suspect.

Maybe because of that speed bump, the judge further determined that if he was incorrect with respect to any of these issues, that any errors by the arbitrator were not errors which would significantly affect the rights of the parties, and therefore no leave to appeal should be granted.

TAKEAWAYS

  • One of the things they do not teach you in law school is that questions are 90% about facts and 10% about law. Lawyers tend to have to learn this the hard way.
  • We always hope the clients do not have to also learn it the hard way.
  • Courts remain reluctant to question the decisions of arbitrators on matters of fact.
  • A right to appeal will not be used to give an unsuccessful party a second chance to be successful on the facts.
  • Courts will take a narrow interpretation of the meaning of the phrase “error in law”.
  • If you want a broader right of appeal from an arbitration, your arbitration clause must reflect this. The Arbitrations Act provision in issue in this case is a default provision and the provisions of your agreement would take precedence.
  • Non-solicitation clauses are more important than ever now that most non-compete clauses are unenforceable.

WHAT WEILERS LAW CAN DO FOR YOU

The employment law team at Weilers Law are skilled drafters of agreements. We are diligent in keeping current on this rapidly evolving area of law. We will not just shrug off the significance of the non-solicitation or arbitration clauses in your agreements by inserting boilerplate without consideration of your needs.  We will make sure that you are satisfied that they are likely to suit your ongoing needs.

If you are a prospective employee asked to sign such an agreement, having us review it might save you from trouble down the road.

In the event that you do end up in a dispute with former employees or your former employer, the litigation and alternative dispute resolution lawyers at Weilers Law can provide you with guidance and representation in attempting to resolve your disputes in a cost effective and sound manner. We not only know that decisions are mainly about the facts, but we also know how to identify the evidence to prove the facts you need. Whether you are an employer or a former employee,  Weilers Law may be the right lawyers for you.