Employer’s Contract Breach renders Non-Competition Clause Unenforceable against former employee

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  • June 27, 2016

Employer’s Contract Breach renders Non-Competition Clause Unenforceable against former employee

A recent decision of the BC Supreme Court is a good reminder that employers that wish to rely on non-competition or non-solicitation clauses in their contracts with former employees should comply with other aspects of the contract or risk the clauses being held unenforceable.

In P.R.I.S.M. v. Kramchynski, 2016 BCSC 883, the employer, by failing to provide the employee with sufficient work, breached its obligation to provide work under the employment agreement, thus rendering a non-competition agreement unenforceable against the employee.

The plaintiff, Powell River Industrial Sheet Metal Contracting Inc. “Prism”), sought damages against a former employee, Darryl Kramchynski, for quitting his employment at Prism and accepting employment with a competitor. Kramchynski had previously owned another business that involved refrigerator, air conditioning and furnace repair. Prism purchased the company in 2010, and as part of the sale Kramchynski agreed to work at Prism as an HVAC technician. He signed a Non-Competition agreement providing that he would not compete or be employed in the refrigeration business in Powell River for three years.

Kramchynski became employed with Prism after the sale closed, and was paid on an hourly basis. Over the next two years, his hours declined significantly and he became concerned that he was not earning enough to support his family. Kramchynski complained to Prism about the lack of work but nothing was done to increase his hours. In March 2012, he quit and went to work for a competitor.

Prism sued Kramchynski for breach of the non-competition clause. Kramchynski argued that the clause was unenforceable because Prism had breached his employment contract by failing to provide him with sufficient work. The Court agreed with Kramchynski and dismissed Prism’s claim, writing:

“In failing to provide the defendant with sufficient work to allow him to receive the benefit of a higher hourly rate of pay and the health and welfare benefits provided under the collective agreement, the plaintiff breached his obligation to the defendant under the employment agreement and rendered the non-competition agreement unenforceable against him. The broad non-competition agreement lost its legitimacy and became exploitive in circumstances where the plaintiff sought to restrict the defendant from working elsewhere but did not seek to promote the business or address the competition.”

Interestingly, the Court found that the broad non-competition clause was reasonable at the time it was negotiated, and only became unreasonable when Prism breached its obligation to Kramchynski.

Non-competition clauses in employment contracts are difficult for employers to enforce, as courts will often find them unenforceable for being overly broad or unreasonable in scope. Employers must ensure that a non-competition clause does not go beyond what is reasonably necessary to protect the legitimate proprietary interests of their businesses. In addition, this recent case makes it clear that employers wishing to rely on a non-competition clause cannot themselves breach any explicit or implicit obligations to its employee, as such a breach may render the clause void and unenforceable.