Are Ex Employees Allowed To Set Up A Competing Business?

In my last column we canvassed a fictional scenario of Izzie v. Selila. Izzie hired Selila Ness to work for his travel agency located in Israel and the United States called “Izzie Travels”. Soon, Izzie recognized her talent and took complete control of the business. Izzie trusted her with his client lists, introduced her to his contacts and Selila managed the business Izzie built. After ten years Selila quit. She moved to Ontario and created her own Travel Agency. Selila used all of Izzie’s contacts, made use of his client lists and was a complete success. That success came at Izzie’s expense. Selila’s contract with Izzie provided that she would not compete with Izzie Travels in any similar activity for a period of three years. Since Selila was in Ontario he sued her in that jurisdiction.

The courts take a number of factors into account when they consider a case like this. Is the restrictive covenant ambiguous? Is it unreasonable? In determining the unreasonableness of the prohibition to compete Ontario courts look at the geographic coverage of the restriction, the activity being restricted and how long the ex employee is forbidden to compete. It is also relevant the scope of the activity the ex employer seeks to restrict. Furthermore, under the law of Ontario, the onus lies upon Izzie, the party trying to enforce the covenant, to prove that the clause in the contract is unambiguous and reasonable in the circumstances ¹.

Selila’s lawyers might argue that her contract was invalid because the terms were unreasonable and far too broad. It was unreasonable because three years is too long and to forbid her to open up a similar business in another country makes the restriction too wide.

Izzie would argue that his is an international business with contacts and clients in the United States and Canada. He might say Selila understood the restrictions when she signed the agreement and agreed to them. It was unambiguous and not unreasonable given the facts and circumstances of travel being an international business.

What would a court say? Let’s take a look at the case of Esakov v. Skylink Holidays Ltd.² The Applicant, Esakov, worked for Skylink Holidays Ltd. which promoted trips to Israel. The parties signed an employment agreement which included non-compete clause saying that Esakov could not compete with company for three years in any similar business except for those businesses he had previously dealt with. That list was included as a schedule to the agreement. The court struck down the non compete clause because, in its view, the three years was unreasonable and the restriction on the type of work too far reaching.