Dennis Cantelo carrying on business under the name Drillers Tattoos - v. -, 2011 SKPC 186

IN THE PROVINCIAL COURT OF SASKATCHEWAN CIVIL DIVISION Citation: 2011 SKPC 186 Date: December 5 , 2011 File: 165/10 Location: Yorkton _____________________________________________________________________________ Between: Dennis Cantelo carrying on business under the name Drillers Tattoos - and - Adam Paton Brian Tourney For the Plaintiff Wayne Rusnak For the Defendant _____________________________________________________________________________ JUDGMENT P. KOSKIE , J _____________________________________________________________________________ [ 1 ] The Plaintiff operates a tattooing business known as Drillers Tattoos in Yorkton, Saskatchewan.

[ 2 ] On August 8, 2007, the Plaintiff and Defendant entered into a one year Apprenticeship Agreement which contained the following restrictive covenant clause: Adam Paton agrees that in event of the termination of this agreement by either party and after the term hereof has expired that he will not engage in tattooing for gain nor will he be a proprietor of, nor employee, servant or contractor of any person or corporation engaged in the operation of a tattooing business within a 200 mile (320 km) radius of the City of Yorkton for a period of 3 years commencing the final date at Drillers Tattoos.

The parties agree that in the event that Adam Paton is in breach of this condition that he will pay Dennis the sum of $10,000.00 as liquidated damages and not as penalty. This provision will continue in effect both during and after the term of this agreement as well as in the event of termination of this agreement before the term hereof has expired. [ 3 ] An independent witness testified that the Plaintiff suggested to the Defendant that he take this contract to his own lawyer to review but the Defendant chose not to and in any event the Defendant had a choice to make and did so.

I do not find any issue with the parties entering into the contract. [ 4 ] The Defendant continued to work with the Plaintiff for a period of approximately two years after the apprenticeship was over under what is described as a chair rental agreement until July 20, 2010 although no formal agreement was entered into between the parties. [ 5 ] This chair rental agreement was never put into writing but entailed a payment of $500.00 per month by the Defendant to the Plaintiff and the Defendant was to be responsible for his own income tax and deductions.

Any money the Defendant made from tattooing would be his to keep after the payment of chair rent.

Essentially, this is the same payment the Defendant made when he apprenticed for the Plaintiff. [ 6 ] The Defendant quit after the Plaintiff closed down the shop for a one week holiday period in July of 2010 whereby the Plaintiff did not provide a key to the Defendant to allow the Defendant to continue to work. [ 7 ] The Plaintiff on previous occasions had provided the Defendant the key for part of the time when the Plaintiff was on holidays, and the Court notes that it appears the Defendant was treated as an independent contractor for employment and tax purposes but not so when the Plaintiff went on holidays.

The Defendant was getting married and needed the money so he was not interested in taking a holiday at this particular time. There is no doubt the Defendant knew the Plaintiff was going on holidays well in advance but assumed he would get a key to continue working so he was not concerned about this issue until he was denied a key and therefore the ability to work. [ 8 ] It seems this issue came down to doing work in regular business hours as opposed to doing appointments outside of regular hours by appointment.

There was some suggestion that no one was able to look after the bottom part of the shop but I do not find that to be a legitimate concern having regard to the ability to lock the shop and deal with just one customer at a time by appointment. [ 9 ] The Plaintiff has testified that one month after the Defendant left, a new person was hired who now pays $600.00 rent a month for a chair due to a rent increase that the Plaintiff incurred in general to his building.

The Plaintiff gave evidence that his income was down by about $6,700.00 following the Defendant’s departure but no evidence was led as to what had caused this decrease specifically except for an increase in expenses and the fact some of the Defendant’s clientele followed him. [ 10 ] The Defendant did start a tattooing business in the City of Yorkton in September called Skin City Tattoos and let people know through Facebook and the Chamber of Commerce letter he was open for business and no longer at Drillers Tattoos. [ 11 ] The Defendant testified that he did not take any client lists from the Plaintiff.

[12] The Defendant while employed by the Plaintiff made his money from clients that booked with him to do tattoos while underthe chair rental agreement. This did not increase or decrease the Plaintiff”s revenue for he only received the $500.00 chair rentalregardless how busy the Defendant was at any given time. [13] The front person for the business Drillers Tattoos was and continues to be the Plaintiff who has been in the business since1993 in Yorkton.

The Plaintiff’s wife works with the Plaintiff in the business in the lower part of the shop answering phones, bookingappointments for both tattoo artists and selling jewelry, etc. She handled most of the bookings for the shop and the tattooing is done onthe upper level. [14] The leading case from the Supreme Court of Canada is Elsley v. J.G. Collins Agencies Ltd. (1978), (SCC), 2S.C.R. 916, where Elsley sold the insurance business and received compensation for same and then continued to manage the insurancecompany from 1956 to 1973 and dealt with the customers almost exclusively.

In fact, Elsley was the face of the company and after thesale there was no change in who the customers dealt with for their insurance needs. Mr. Elsley had access to all policy holder recordsincluding insurable assets, financial credit, likes and dislikes and idiosyncrasies of each customer in a recurring and confidentialrelationship.

When Elsley left he took three employees and a large number of such clients transferred their business to Elsley. [15] In Elsley, Dickson J. articulated the overarching principles applicable to restrictive covenants as follows (at p. 923): The principles to be applied in considering restrictive covenants of employment are well-established. They are found in the cases above-mentioned and in such familiar authorities as the Nordenfelt case, [1894] A.C. 535, Mason v. Provident Clothing and Supply Co., [1913]A.C. 724 and Attwood v. Lamont, [1920] 3 K.B. 571. Of more recent vintage: Scorer v.

Seymour-John, [1966] 3 All E.R. 347 andGledhow Autoparts Ltd. v. Delaney, [1965] 1 W.L.R. 1366. A covenant in restraint of trade is enforceable only if it is reasonablebetween the parties and with reference to the public interest. As in many of the cases which come before the courts, competing demandsmust be weighed. There is an important public interest in discouraging restraints on trade, and maintaining free and open competitionunencumbered by the fetters of restrictive covenants.

On the other hand, the courts have been disinclined to restrict the right to contract,particularly when that right has been exercised by knowledgeable persons of equal bargaining power. In assessing the opposing intereststhe word one finds repeated throughout the cases is the word "reasonable." The test of reasonableness can be applied, however, only inthe peculiar circumstances of the particular case. Circumstances are of infinite variety. Other cases may help in enunciating broadgeneral principles but are otherwise of little assistance. [16] The overall test is one of reasonableness.

The validity or otherwise of a restrictive covenant can be determined only upon anoverall assessment of the clause within the agreement and all of the surrounding circumstances. [17] Justice Dickson also set out three factors requiring special attention where enforcement is sought of a non-competitioncovenant embodied in an employment contract: (1) whether the employer has a proprietary interest warranting protection; (2) whether the temporal or spatial features of the non-competition covenant are too broad; and (3) whether the non-competition covenant violates public policy against the unreasonable restriction of competition generally and,therefore, is unenforceable. [18] A number of other cases were filed to illustrate the application of the Elsley decision. [19] In Lyons v.

Multari, (ON CA), 50 O.R. (3d) 526, a decision of the Ontario Court of Appeal, an associatedental surgeon left his employment as an associate and opened up a new oral surgery practice 3.7 miles from his former employer. TheCourt held that the employee did not take with him trade secrets or confidential information beyond the names of referring dentists ofpatients who he had personally treated.

In that case, a three year, five mile protective covenant was entered into and was foundreasonable for spatial and temporal requirements but on the issue of whether a non-solicitation clause as opposed to a non-competitionclause would suffice, the Court held at paragraphs 33, 34 and 35 of that judgment:

[33] An important question in the case law relates to the relationship between non-solicitation and non-competition clauses. Generally speaking, the courts will not enforce a non-competition clause if a non-solicitation clause would adequately protect an employer's interests.

In Elsley , Dickson J. framed the inquiry in this fashion, at p. 925: The next and crucial question is whether the covenant is unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer. [34] Dickson J. continued, at p. 926: Whether a [non-competition] restriction is reasonably required for the protection of the covenantee can only be decided by considering the nature of the covenantee's business and the nature and character of the employment.

Admittedly, an employer could not have a proprietary interest in people who were not actual or potential customers. Nevertheless, in exceptional cases, of which I think this is one, the nature of the employment may justify a covenant prohibiting an employee not only from soliciting customers, but also from establishing his own business or working for others so as to be likely to appropriate the employer's trade connection through his acquaintance with the employer's customers. This may indeed be the only effective covenant to protect the proprietary interest of the employer.

A simple non-solicitation clause would not suffice. [35] The question to be addressed in this appeal is whether this is one of those "exceptional cases" where "a simple non-solicitation clause would not suffice". [ 20 ] This quote is important in that it states an employer does not have a proprietary interest in people who were not actual or potential clients except in exceptional circumstances. [ 21 ] Lastly, in Thienes v. Godenir , 2011 SKQB 271 , Mr.

Justice Koch recently dealt with a restrictive covenant issue concerning a young optometrist in Swift Current who went to work for the only optometrist office in the Swift Current area as an associate, at page 11 of the judgment he states the law to be applied is as follows: In

summary, to assess the reasonableness of a restrictive covenant to determine whether the Court should enforce it, the following questions must be addressed: 1. Does the Plaintiff have a proprietary interest to protect? 2. Are the spatial and temporal features of the clause too broad? 3. Is the non-competition clause reasonable as between the parties? 4. Is the clause unenforceable as being against competition generally? [ 22 ] The restrictive covenant clause in Thienes stated that she could not work within a 150 kilometre radius of Swift Current for a period of two years.

The Court came to the conclusion that there was no proprietary interest to protect and if there was, whatever proprietary rights the Plaintiff possessed could have been adequately protected by a non-solicitation covenant alone. Further, that a spatial requirement that she not practice within 300 kilometres is untenable and extremely unreasonable in the circumstances. Decision [ 23 ] It is clear to me that the Defendant was not and is not the face of Drillers Tattoos.

He was not in any way the main attraction or primary person at the tattoo shop and was not in charge of the client list or booking procedures while he worked at the business. [ 24 ] This is in sharp contrast to Mr. Elsley who sold his insurance business and then ran it exclusively for many years and was the primary contact and face of his business where a restrictive covenant was upheld and found to be reasonable in those circumstances.

This distinguishes the Elsley case from the case at bar. [ 25 ] This relationship broke down over a lack of access to the shop that was in the complete and total control of the Plaintiff who

by locking the doors while he went away on holidays effectively ended any ability the Defendant had to earn a living while the Plaintiffwas on holidays. These actions clearly show who was in control of Drillers tattoo business even when on holidays. [26] There is no evidence that the Defendant took a client list and/or any other information from the Plaintiff other than the skilland tricks of the trade that he learned from an experienced tattoo artist, namely Mr. Cantelo.

There is evidence that he let his old clientsknow that he was opening a new tattoo shop and was no longer at Drillers Tattoos but there is no proprietary interest in potentialcustomers or actual customers of the Defendant having regard to the chair rental agreement that the parties were working under. [27] Therefore I have trouble finding a proprietary interest other than a continued wish for a lack of competition that should beprotected in this instance. In Thienes, Mr. Justice Koch cited Winnipeg Livestock Sales Ltd. v.

Plewman, 2000 MBCA 60, 192 D.L.R.(4th) 525 and at the middle of paragraph 40 stated as follows: Scott C.J.M. held that the restrictive covenant served to prevent competition generally and that in the absence of evidence of exceptionalcircumstances such as the obtaining of trade secrets, confidential customer information or customer lists the interest of the employer wasonly to protect its own goodwill rendering the covenant unreasonable as between the parties.

The Winnipeg Livestock case is of assistance here on the issue of whether the plaintiffs had a valid proprietary interest to protect at thetime they entered the contract. It also holds that the plaintiffs have the onus of proof as to whether the restrictive covenant is reasonableas between the parties and is not excessive in its spatial and temporal aspects. It is not for the defendant to prove unreasonableness. Only once the plaintiffs have proven all of these ingredients does the onus switch to the defendant to prove that it is not in the publicinterest to enforce the restrictive covenants.

The court held in Winnipeg Livestock that the employer had no proprietary interest in theemployee's professional skill and experience even if it was acquired by the employee while working for the employer. If the restrictivecovenant cannot be seen as protecting a valid proprietary interest it is not enforceable. If the sole purpose of the restrictive covenant is toprevent competition, it will be held to be contrary to the public interest. [28] Further at paragraph 47 in Thienes, dealing with a notable Saskatchewan case is the decision of Barclay J. in R.L.

Crain Inc. v.Hendry (1988), (SK KB), 48 D.L.R. (4th) 228 (Sask. Q.B.). Barclay J. stated in para. 15: In the absence of a legitimate proprietary interest requiring protection the general rule must apply, that is, that all covenants in restraintof trade which are aimed primarily at the elimination of competition are contrary to public policy and, therefore, void.

In my opinion,the restrictive covenant in issue was not aimed at the protection of any proprietary interest but intended simply to eliminate thepossibility of an employee leaving the employ and going into competition. [29] Barclay J. determined on the facts that the Defendant had not been entrusted with confidential information and trade secrets. On that account, the Plaintiff did not have a proprietary interest that the Court should assist it to protect. Barclay J. reached an oppositeconclusion on different facts in Sunsweet Fundraisers v. Moldenhauer (1991), (SK KB), 98 Sask.

R. 81 (Q.B.). [30] I am of the view that this restrictive covenant was aimed at eliminating competition as opposed to protection of a genuineproprietary interest and is therefore against public policy. [31] Further, no evidence was led to support a spatial requirement of 320 kilometres from Yorkton in the circumstances and like inthe Thienes decision I find this spatial clause untenable and unreasonable in the circumstances.

The only evidence led on this point wasthat the majority of the Plaintiff’s clientele came from the Yorkton area or people that commissioned the Plaintiff due to his particularartistry, experience and skill. There was no evidence led that would suggest both Regina and a major portion of Manitoba comprising avery large population needed to be included in this restrictive covenant. [32] Finally, it is clearly the law that where a non-solicitation clause would suffice to protect an employer’s interest a non-competition clause is against public policy.

Like Lyons and Thienes, this is not such an exceptional case that would warrant theprotection of non-competition.

[ 33 ] Where restrictions of this nature are contrary to public policy they are unenforceable and cannot be patched up by the Court and accordingly, the Claim is dismissed without costs. P. Koskie, J