A recent decision out of the Ontario Superior Court of Justice confirms that employees cannot give, contractually agreed, notice of resignation only to unilaterally leave early to work for a competitor.
The plaintiff employee was a Senior Vice-President at Blackberry. In the early fall of 2013, he was offered a promotion to Executive VP. As part of this promotion, he signed an employment contract under which he was required to give six months’ notice prior to resigning his position. After Blackberry brought in a new CEO in November 2013, the employee began to believe that he would be better off elsewhere. He began talks with Apple, one of Blackberry’s chief competitors, to join their operations in California.
In December 2013, the employee advised Blackberry that he would be joining Apple in two months. Blackberry insisted that the employee provide six months’ notice stipulated under the contract, and demanded that the employee continue to work under the employment contract until the end of that period.
Blackberry went to the courts to enforce the notice requirement of the contract. The employee argued that the notice provision of the contract should not be enforced.
Employees are prohibited from acting in direct competition with their employers while they are employed. In a 2008 Supreme Court decision called RBC Dominion Securities, the Supreme Court found that this prohibition only lasted as long as the employment relationship did. Following its conclusion, employees may freely compete against their former employer, through their own business or by joining a competitor.
If an employer chooses to provide reasonable notice of termination, or accept the reasonable notice of resignation of an employee, the employment relationship continues to the end of the notice period. This can be contrasted with situations where an employer chooses to make a payment in lieu of notice, which immediately ends the employment relationship.
The employee argued that RBC Dominion Securities entitled him to compete with his employer by joining Apple as soon as he informed Blackberry of his decision to leave. The Court dismissed this argument out of hand. The Court held that the employee was entitled to compete with Blackberry – after the end of the notice period, when he was no longer contractually bound. Until then, he was an employee, and as a result he was prohibited from working for a competitor.
One novel argument made by the employee was that this employee-notice provision had the effect of a non-compete clause, since it would delay his ability to compete in the market for six months following his decision to leave Blackberry. The Court dismissed this argument as well, finding that the clause was not akin to a non-competition agreement.
Lessons for Employers
Under the Employment Standards Act, employees must give two weeks’ notice of their decision to resign their position. It is also common for employment agreements with more senior employees to provide for greater notice of resignation. This case confirms, once again, that such provisions are enforceable, and that employees who give notice are not thereby relieved of their duties of fidelity and loyalty which implicitly apply during the term of their employment.
Non-competition clauses are notoriously difficult to enforce in Canada (see our previous update on non-compete clauses here). In the UK and US, employment contracts for senior employees will often contain what are often termed “garden” or “beach” clauses, under which a departed employee continues to be paid post-employment but cannot compete against their former employer for a specified period of time. Although there is little Canadian case law dealing with such clauses, simply paying an employee by continuance in consideration for a period free from competition is unlikely (in our view) to address our courts’ consistent emphasis on protecting the public’s interest in free competition. In other words, such clauses may not be enforceable in Canada.
As demonstrated by this decision, on the other hand, an enforceable notice provision allows an employer to exercise greater control over the exit of senior employees, and to limit the damage from an unexpected resignation.
As an aside, although it was not discussed in the Court’s decision, given Mr. Marineau-Mes’s senior position at Blackberry he may have been subject to certain implied fiduciary obligations post-employment. It is unlikely that those implied post-employment obligations would have prevented him entirely from taking employment with Apple, but he may have been subject to significant restrictions on his activities. For example, fiduciaries are often prevented for a period of time from soliciting their former employer’s customers and from taking corporate opportunities with them post-employment, even without a separate agreement which says so.