Westpac Solutions Ltd. v. Morgan, 2018 BCSC 976

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Westpac Solutions Ltd. v. Morgan, 2018 BCSC 976 Date: 20180614 Docket: S186323 Registry: Vancouver Between: Westpac Solutions Ltd. Plaintiff And Luke Morgan and ICSClean Supplies Ltd. Defendants Before: The Honourable Madam Justice W.A. Baker Reasons for Judgment Counsel for Plaintiff: M. Samuels I. Davis, A/S Counsel for Defendants: E. Brandt Place and Date of Hearing: Vancouver, B.C. June 8, 2018 Place and Date of Judgment: Vancouver, B.C.

June 14, 2018 [ 1 ] This is an application brought by the plaintiff Westpac Solutions Ltd. (“Westpac”) to restrain the defendant Luke Morgan from directly or indirectly competing with the business of Westpac in the Metro Vancouver area through his employment with ICSClean Supplies Ltd. (“ICSClean”). [ 2 ] The issues on this application arise from terms of an employment agreement dated March 4, 2016 and Mr.

Morgan’s alleged breach of this agreement in his employment with ICSClean, a competitor of Westpac. [ 3 ] The issues in the litigation are broader than the specific terms of the employment agreement at issue on this application, and include claims in damages and breach of fiduciary duties and claims against ICSClean for a constructive trust and an accounting of profits obtained through Mr. Morgan’s disclosure of information and knowledge gained in his employment with Westpac. [ 4 ] This application is limited to the employment agreement in which Westpac and Mr.

Morgan agreed to various terms including the following which are relevant on this application:

a) a non-competition covenant, requiring Mr. Morgan to not be engaged in any business that competes with the business of Westpac in the Metro Vancouver area of British Columbia for a period of 12 months following the termination of his employment;

b) a confidentiality covenant, requiring Mr. Morgan to not disclose Westpac’s confidential information; and

c) a non-solicitation covenant, requiring Mr. Morgan to refrain from soliciting any of Westpac’s clients or employees for a period of 12 months following termination of his employment. [ 5 ] Mr. Morgan was employed by Westpac from March 8, 2016 until he left in May 2018. There is an issue regarding the exact date his employment terminated, but this is not relevant on this application. During his employment with Westpac Mr.

Morgan began as a sales and customer service representative, quickly moving to the position of “inside sales lead”, and most recently holding the position of “equipment and chemicals specialist”. In his various roles with Westpac Mr. Morgan gained knowledge of Westpac’s customer base and suppliers, and its pricing and costing. [ 6 ] On May 11, 2018 Mr. Morgan tendered his resignation to Westpac. He began working for ICSClean, a competitive business, on May 22, 2018.

[7] Mr. Herbert Bossert, an employee of Westpac, provided an affidavit in support of Westpac where he stated that beginning onMay 14, 2018 and continuing to May 22, 2018 Mr. Morgan contacted him by text message, telephone and in person a number of times.In these communications Mr. Morgan made statements to the effect that he had no non-compete agreement with Westpac and that heintended to entice employees of Westpac to join ICSClean, and contact customers of Westpac. [8] The evidence of Mr. Bossert was disputed by the defendants. Mr. Morgan denied making the alleged statements to Mr.

Bossert.On balance I prefer the evidence of Mr. Bossert, who is a person with no interest in the outcome of these proceedings. He had clear andspecific recollections of communications from Mr. Morgan and I accept that his recollections are accurate. [9] On May 23, 2018, Mr. Jeff Gerhardt, the vice president of Westpac, received an email from a customer of Westpac, Mr. CraigBrown of Alpine Building Maintenance Inc. (“Alpine”), forwarding an email with a quotation from Mr. Morgan who was then atICSClean. On May 27, 2018, Mr. Gerhardt asked Mr. Craig if Alpine was a customer of ICSClean, to which Mr.

Craig responded “no”. [10] The information gained by Westpac from Mr. Bossert and Mr. Craig prompted the commencement of this litigation as Westpachad a serious concern that Mr. Morgan appeared to not accept that he had existing obligations to Westpac of non-solicitation, non-competition and protection of confidential information. [11] On June 1, 2018 Westpac commenced this litigation. On June 5, 2018 it brought on this application on short leave to restrainMr. Morgan and ICSClean from acting in breach of Mr. Morgan’s employment agreement with Westpac. [12] The owner of ICSClean, Mr.

Goeree, swore an affidavit which attached a confidentiality agreement which he required Mr.Morgan to sign on May 22, 2018 upon becoming an employee of ICSClean. Pursuant to this agreement Mr. Morgan agreed that hewould not, during his first year of employment, solicit directly or indirectly from past employment opportunities including but not limitedto coworkers and existing customer accounts with his past employer. The agreement further confirmed that Mr.

Morgan was expected toadhere to a strict rule of confidentiality and not divulge any information obtained through past job positions with past employers and orcompetition directly or indirectly with ICSClean. [13] Mr. Goeree stated in his affidavit that ICSClean holds itself to high ethical standards and he has instructed Mr. Morgan torefrain from using Westpac confidential information for any purpose. Mr. Goeree also produced an email wherein Mr. Morgan identifiedICSClean sales leads which he could not approach due to his prior employment at Westpac. [14] Further, Mr. Goeree stated that Mr.

Morgan was not authorized to recruit employees to ICSClean. [15] At the commencement of this application the parties provided me with a consent order, which I signed, under which Mr.Morgan agreed to be restrained for a period of 12 months from directly or indirectly soliciting any person or entity that was a customer,client, consultant or supplier of the plaintiff during his employment with Westpac, to transfer the business from Westpac to any otherperson or entity, and from directly or indirectly seeking in any way to persuade or entice any person who was an employee of theplaintiff during his employment with Westpac, to leave Westpac’s employment. [16] Mr.

Morgan further agreed under the terms of the order to destroy all confidential information, as defined in the order, which hehad in his power possession or control, to not directly or indirectly, by any means whatsoever, divulge, furnish, provide access to, or usefor any purpose the confidential information, as defined in the order and to provide an affidavit setting out whether he has put to use anysuch confidential information. [17] ICSClean also agreed pursuant to the order to destroy any copies of any and all confidential information which it may have inits power and control, to not on directly or indirectly by any means whatsoever divulge, furnish, provide access to, or use for any purposethe confidential information and to provide its own affidavit setting out whether ICSClean has put such confidential information to anyuse. [18] The only matter left for resolution on this application was whether an injunction should be granted on an introductory basis torestrain Mr.

Morgan’s employment with ICSClean. Test on an injunction application [19] The test on an introductory injunction application is well-settled. The applicant must show that:

a) there is a serious issue to be tried,

b) the applicant will suffer irreparable harm if the relief is not granted, and

c) the balance of convenience favours granting the relief. RJR – MacDonald v. Canada (Attorney General), (SCC), [1994] 1 SCR 311 [20] The parties agree that on an application involving a restrictive covenant, such as the non-competition covenant at issue here, thecourts have imposed a higher threshold on the first branch of the test. In other words, Westpac must show a strong prima facie case thatthe non-competition covenant is enforceable, and the defendant’s ongoing conduct is in breach of the non-competition covenant. Validity of employment agreement [21] The defendants argued on this application that the employment agreement dated March 4, 2016 between Mr. Morgan and

Westpac was no longer valid at the time of Mr. Morgan’s decision to resign from Westpac. [22] The defendants took the position that Mr. Morgan’s employment obligations changed over the course of his employment andthat, periodically, Mr. Morgan would advise the company that his employment agreement no longer matched what he was doing and thatthey needed a new employment agreement. He says that representatives of Westpac agreed with him, but a new employment agreementwas never completed. [23] Westpac says that the employment agreement in place since March 4, 2016 remains the only employment agreement underwhich Mr.

Morgan was employed and its terms remained enforceable to the end of his employment. While Westpac agrees that theduties of Mr. Morgan changed over time, Westpac says that such changes were contemplated in the employment agreement itself.

Inparticular Westpac relies on paragraph two of the agreement which refers to a scheduled job description and states further that “duringyour employment under this agreement, the Company may change your position, title, duties, responsibilities or reporting relationshipsas it deems appropriate from time to time, consistent with your qualifications, skills and experience”. [24] I do not accept the argument of the defendants that the employment agreement changed during the course of Mr. Morgan’semployment. The agreement clearly contemplates periodic changes in duties.

It cannot be that each time a change in duties occurred, theemployment agreement had to be re-written. If there was a component of the employment agreement which was incompatible with Mr.Morgan’s new duties, that may be something which would cause a change in the employment agreement.

However, no incompatibilitieswere shown to me and, if anything, I expect the non-solicitation, non-competition, and confidentiality provisions of the agreement wouldcontinue to be very relevant in the ongoing employment relationship. [25] On this interlocutory application I find that Westpac has established a strong likelihood on the evidence presented that, at trial,it will be able to show the employment agreement is prima facie enforceable: R. v. Canadian Broadcasting Corp., 2018 SCC 5 at para.18, as cited in Quick Pass Master Tutorial School Ltd. v. Zhao, 2018 BCSC 683 at para 32.

Enforceability of the non-competition covenant [26] While I find that the employment agreement was prima facie valid at the time Mr. Morgan offered his resignation, thereremains an issue as to the enforceability of the non-competition covenant. [27] The parties agree that the non-competition covenant will be found to be presumptively void as a restraint of trade unless therestraint is:

a) protective of a legitimate proprietary interest of the employer;

b) reasonable between the parties in terms of temporal length, spatial area covered, the nature of activities prohibited and overallfairness;

c) governed by terms that are clear, certain and not vague; and

d) reasonable in terms of the public interest with the onus on the party seeking to strike out the restraint. National Bank Financial Inc. v. Canaccord Genuity Corp., 2018 BCSC 857 at paragraph 59 and Shafron v. KRG Insurance BrokersWestern Inc., 2009 SCC 6 at paragraph 16 [28] As found by this court in Quick Pass Master Tutorial School Ltd. v. Zhao, 2018 BCSC 683 at para 34: Generally, courts scrutinize restrictive covenants in employment contracts more closely than restrictive covenants in contracts for saleand purchase of a business for two reasons.

First, the inequality of bargaining power between an employer and employee is greater thanthat between other contracting parties. Second, a purchaser of a business generally pays for the business’s goodwill whereas anemployee is not paid for this: Safron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 at paras. 21-22. However, the appropriatedegree of scrutiny must reflect the reality both of the parties’ relative bargaining power and of the bargain struck. [29] Similarly, in Phoenix Restorations Ltd. v.

Brownlee, 2010 BCSC 1749 at para. 26, this court found: A restrictive covenant is enforceable only if it is reasonable between the parties and with reference to the public interest. The test ofreasonableness must be applied in the particular circumstances of each case, based upon an overall assessment of the clause, theagreement within which it is found and all of the surrounding circumstances: Elsey v. J.G. Collins Insurance Agencies Ltd.

Estate, (SCC), [1978] 2 S.C.R. 916 at 923-924. [30] In considering whether Westpac has established a strong prima facie case that the non-competition covenant will be found to beenforceable at trial, I have considered all of the evidence before me on this application, including the steps taken by the defendants toprotect the confidential information of Westpac, and to prevent solicitation and competition arising out of Mr. Morgan’s prioremployment with Westpac.

Legitimate Proprietary Interest [31] Westpac asserts that it has a legitimate proprietary interest in its information relating to its business, including client lists,employee directories, costing information, equipment list, and pricing information. The defendants do not contest that Westpac has alegitimate proprietary interest in such information and have taken steps to protect this interest. [32] The question on this application is whether the restraint on Mr. Morgan’s current employment is necessary to protect such

interests. Westpac says that 90% of its business is generated through non-contract business and Mr. Morgan’s knowledge of Westpac’s business puts Westpac at risk of being undercut and places Westpac at a competitive disadvantage. Terms that are Clear, Certain and Not Vague [ 33 ] The terms of the employment agreement are very clear. Mr.

Morgan is restrained under the employment agreement from disclosing any confidential information disclosed to him, used by him, developed by him, or made known to him in the course of his employment and he acknowledged under that agreement that Westpac’s business would be irreparably harmed if such confidential information were disclosed to or used by any person outside the company. [ 34 ] Mr. Morgan is also restrained under the non-competition covenant to not directly or indirectly carry on any business, or be engaged or employed in any business, that competes with the business of Westpac.

The non-competition covenant clarifies that for the purpose of understanding the business of the company in relation to the non-competition covenant, the business of the company is “distributing paper, packaging, equipment and janitorial related products to commercial, industrial, institutional and government clients”. Westpac emphasized that Mr.

Morgan is not restrained from working for a company that performs cleaning services; he is simply restrained from working for a company which distributes janitorial related products to commercial, industrial, institutional and government clients. [ 35 ] The non-competition covenant is very detailed in describing the area within which Mr. Morgan is restrained from employment.

The areas within Metro Vancouver where he is restrained from employment include Vancouver, Burnaby, North Vancouver, West Vancouver, Richmond, New Westminster, Surrey, Delta, Langley, Port Moody, Coquitlam, Port Coquitlam, White Rock, Pitt Meadows, Maple Ridge and Abbotsford. [ 36 ] Finally, in the employment agreement Mr. Morgan agreed that a breach of the confidential information, non-competition, or non-solicitation covenants in the agreement would result in irreparable harm to the company that could not be adequately compensated by way of a damage award.

He also agreed that in the event of such a breach the company was entitled to obtain as a matter of right from the court injunctive relief by way of restraining order injunction decree or otherwise as may be appropriate. Reasonable between the Parties in terms of Temporal Length, Spatial Area Covered, the Nature of Activities Prohibited and Overall Fairness [ 37 ] The defendant’s primary argument centred on the unreasonableness of the non-competition covenant. [ 38 ] The defendants did not seriously argue that 12 months was an inappropriate length of time. Westpac relies on 6180 Fraser Holdings Inc. v.

Ali , 2012 BCSC 247 , where 12 months was upheld as an appropriate length of time for a restrictive covenant, and Quick Pass Master Tutorial School Ltd. v. Zhao , 2018 BCSC 683 (“Quick Pass”) where 18 months was held to be reasonable temporal restriction on competition for a small company. [ 39 ] The defendant took issue with the spatial area covered under the non-competition covenant and the fact that the Mr. Morgan would be restrained from employment, not simply from using information obtained from Westpac. In particular, the defendants argued that the effect of this non-competition covenant was to preclude Mr.

Morgan from working anywhere in the lower mainland. As Mr. Morgan has worked in the janitorial services industry for 25 years, and has a family living in the lower mainland comprised of his wife and four children, the effect of the non-competition covenant would be to force the entire family to move from the lower mainland to allow Mr. Morgan to continue working. Alternatively Mr.

Morgan would not be able to work in the lower mainland and would lose his home and be unable to provide for his family. [ 40 ] Counsel for the defendant noted that in Quick Pass , the restrained party was able to work within the lower mainland generally and was only prohibited from working within three specific municipalities. As such the restrained party in that case was able to continue living and working in the lower mainland. [ 41 ] The non-competition covenant restrains Mr. Morgan from entering employment for a janitorial supply distributor. Mr.

Morgan has years of experience in the janitorial equipment and supplies industry, but not all of that has been working for distributors. Mr. Morgan is not restrained from working for janitorial companies, and the restraint on his employment activities is directly related to the work he did well employed by Westpac. There was no evidence led on this application as to the availability of alternate employment for Mr.

Morgan, including whether work outside janitorial distributorships was available to him at a competitive salary. [ 42 ] In considering the overall fairness of the restraint on employment in the non-competition covenant, I must also consider the circumstances in which the parties find themselves. In 6180 Fraser , the court found that the restraint on competition was reasonable because it prevented the defendant from performing services for a customer of the plaintiff, and from soliciting business from customers of the plaintiff.

The restrictive covenant in 6180 Fraser did not restrain the defendant from obtaining new employment. [ 43 ] In the case at bar, Mr. Morgan has consented to an order whereby he will not solicit any customer or supplier of Westpac, or attempt to transfer business from Westpac, or attempt to solicit employees of Westpac. Both defendants have consented to orders wherein they will not use any confidential information, as defined in the order. [ 44 ] In addition, ICSClean required Mr. Morgan to sign an agreement wherein Mr.

Morgan agreed he would not directly or indirectly divulge to ICSClean any information obtained through his past job position at Westpac. Reasonable in terms of the public interest [ 45 ] Westpac argues that it is important that clearly written employment agreements be upheld. It says that Mr. Morgan understood what he was agreeing to when he signed the employment agreement and he deliberately chose to take employment in breach of that

agreement with ICSClean. [ 46 ] The defendants say that the strict application of the non-competition covenant is too onerous and is prejudicial to employees who are at a bargaining disadvantage with their employers. [ 47 ] Further, the defendants rely on Phoenix Restorations Ltd. v. Brownlee , 2010 BCSC 1749 , in support of their position that enforcement of the restrictive covenant is not necessary to protect the interests of Westpac.

In Phoenix , the court found that, “Generally speaking a court will not enforce a non-competition covenant if a non-solicitation covenant would adequately protect an employer’s interest” (para. 32), and found that an “employer seeking to rely on a restrictive covenant must show that the restrictions are no wider than reasonably required to adequately protect its interests” (para. 41). Conclusion on enforceability of the restrictive covenant [ 48 ] I find for the purposes of this application that Westpac has a legitimate proprietary interest in business information held by Mr.

Morgan, and the language of the non-competition agreement and the employment agreement are clear and unambiguous. I find that the length of time for the restrictive covenant is reasonable. [ 49 ] I find that there is a public interest in protecting business information obtained through employment with a competitor; however, there is a competing public interest in ensuring that restrictive covenants relating to employment do not overreach the protection of these legitimate interests. [ 50 ] I find that the geographic area coupled with the restraint on employment is unreasonable.

If I enforced the restriction on employment found in the covenant, the impact on Mr. Morgan would be unreasonable and unnecessary in light of the protections agreed to by the defendants. [ 51 ] The legitimate interests of Westpac are protected by the terms of the consent order and the confidentiality agreement made between ICSClean and Mr. Morgan. The order and agreement restrain Mr. Morgan from using to the advantage of ICSClean any information gained in his employment with Westpac. I do not find it necessary to restrain Mr.

Morgan’s employment with ICSClean in order to protect the legitimate business interests of Westpac. [ 52 ] In the result, I find that Westpac has not established a strong prima facie case that it will succeed in at trial in establishing the enforceability of the restrictive covenant to restrain Mr.

Morgan from his employment with ICSClean. [ 53 ] In light of this finding, I do not find it necessary to provide reasons on whether Westpac established irreparable harm, or where the balance of convenience lies. [ 54 ] The interlocutory application of the plaintiff Westpac to enforce the restrictive covenant and restrain Mr. Morgan’s employment with ICSClean prior to trial is dismissed. [ 55 ] The defendants will have their costs in the cause. “W.A. Baker J.”