Court of Appeal Decision in Favour of Employee
Sued by Former Employer for Alleged Breach of
Non-Competition/Solicitation Covenant

Graham Jones of Shields & Hunt defended Serge Berthiaume in an action by IT/NET for breach of contract.

The Situation
The federal government frequently supplements its workforce with the services of consultants on a contract basis through its Request for Proposals (“RFP”) process. Various service providers or consulting firms are invited to bid on upcoming contracts for work with government departments, and the low bid, together with the best candidate, normally wins the contract. IT/NET is a service provider that successfully bid on a contract with the Department of Foreign Affairs and Internal Trade (“DFAIT”). IT/NET contracted with Mr. Berthiaume to fill the position with DFAIT. DFAIT paid IT/NET a daily rate for Mr. Berthiaume’s work and IT/NET paid Mr. Berthiaume a percentage of that amount. It was anticipated that this would be a long-term placement, provided that DFAIT was satisfied with Mr. Berthiaume’s work.

IT/NET required Mr. Berthiaume to execute an agreement that included a non-solicitation and non-competition clause, effective for twelve months after termination of the agreement. It also contained a duty of confidentiality clause.

The contract between IT/NET and DFAIT for Mr. Berthiaume’s services had to be renewed through the RFP bidding process as each successive contract expired. After four years in the position, however, Mr. Berthiaume wanted to obtain a larger percentage of the revenue he generated for IT/NET. His request to IT/NET for more money and training was refused. As such, he contacted another management consulting firm, Pertinex, and agreed to work for it at a higher percentage of the per diem rate, when the contract between IT/NET and DFAIT came up for renewal. Mr. Berthiaume confirmed with a manager at DFAIT that it would accept a bid from another firm for his services, then assisted Pertinex in preparing its bid. Even though Pertinex bid the highest per diem rate, its bid was successful. IT/NET sued Mr. Berthiaume for breach of the non-solicitation/non-competition and confidentiality clauses in their agreement.

The contract between IT/NET and Mr. Berthiaume provided as follows:

4. Non-Solicitation & Non-Competition: The Subcontractor agrees that during this agreement period, and for a period of 12 months after its termination, that s/he will not, directly or indirectly, on anyone's behalf (including, company, partnership, person, or self) :

4.1 offer or cause to be offered, or to recommend, the offering of employment or subcontract services, to any employee or Subcontractor of IT/NET;

4.2 he/she will not attempt to solicit business from any IT/NET clients or prospects without he written consent of IT/NET. The intent of this clause is to reasonably protect the goodwill of IT/NET while at the same time not unduly limiting the ability of the Subcontractor to continue in the practice of his/her profession.

5. DUTY OF CONFIDENTIALITY: The Subcontractor agrees and acknowledges that s/he has a fiduciary duty to comply with the duties found in this clause. The Subcontractor will not at any time, directly or indirectly, divulge to anyone (including, Company, partnership, person or self) either:

5.1 Any name, address or requirement of any customer of the IT/NET;

5.2 Any process, method or device of IT/NET or other information, whether of the foregoing character or not as a result of his service;

5.3 Any of the financial affairs of IT/NET.

The Trial
At trial, Mr. Jones argued that the restrictive covenant overreached what was required to protect IT/NET’s proprietary interest. In addition, having no spatial definition made the covenant too broad and the terms of the covenant were ambiguous. Mr. Jones also argued that the clause was contrary to the public interest, as it was too wide a prohibition against trade and competition.

The Trial Judge agreed with Mr. Jones’ argument and ruled the non-solicitation/non-competition clauses unenforceable. However, the Trial Judge concluded that Mr. Berthiaume breached the duty of confidentiality by exploiting four pieces of confidential information, namely:

1. he became aware of SXID’s need for someone to fill the position he was in;
2. he learned when the IT/NET – SXID contract was coming up for renewal;
3. he learned how much IT/NET had bid for the contract he was filling; and
4. he learned about the technical aspects of IT/NET’s proposal to SXID.

Mr. Jones was of the opinion that the Trial Judge erred in law and recommended to Mr. Berthiaume that the decision be appealed. Mr. Berthiaume agreed.

The Appeal
The appeal was heard by the Ontario Court of Appeal. Mr. Jones argued that the information noted above as items 1 (he became aware of SXID’s need for someone to fill the position he was in) and 2 (he learned when the IT/NET – SXID contract was coming up for renewal) was information belonging to SXID (a department within DFAIT) and, therefore, was not confidential. He argued that the Government of Canada made this information widely known by providing the RFP to any service provider who requested it. He noted that at least seven service providers other than IT/NET and Pertinex were asked to bid on the contract and were provided with the information that the Trial Judge found was confidential.

With respect to the information listed above as item 3 (he learned how much IT/NET had bid for the contract he was filling), Mr. Jones argued that the uncontraverted evidence was that Pertinex bid the maximum amount allowed by DFAIT. Accordingly, even if Pertinex had been aware of the amount IT/NET had bid on previous contracts, or was bidding on the current contract, this information could not have given Pertinex a competitive advantage as it bid the maximum amount and did not underbid any service provider, including IT/NET.

With respect to the information listed above as item 4 (he learned about the technical aspects of IT/NET’s proposal to SXID), Mr. Jones argued that Mr. Berthiaume did not learn of the technical aspects of IT/NET’s proposal in response to previous RFPs. He argued that the uncontraverted evidence was the Mr. Berthiaume never saw, nor was he advised of the contents of any of IT/NET’s proposals to DFAIT, other than completing a section of the proposal listing his skills and qualifications. In short, the “technical aspects” of IT/NET’s proposals of which Mr. Berthiaume had knowledge was Mr. Berthiaume’s knowledge of his own experience and qualifications. Mr. Jones argued that this was not confidential information.

In sum, Mr. Jones argued that there was no basis on the evidence before the Trial Judge upon which she could base a finding that Mr. Berthiaume had breached any duty of confidentiality owed to IT/NET, either under contract or at common law. There was no confidential information and no information of a confidential nature was conveyed.

The Result
The Court of Appeal agreed with Mr. Jones’ argument and concluded that Mr. Berthiaume did not breach his duty of confidentiality. The Court of Appeal overturned the decision of the Trial Judge, finding in favour of Mr. Berthiaume. The Court of Appeal ordered IT/NET to pay Mr. Berthiaume’s legal costs for the appeal and the trial.

Mr. Jones is a partner with Shields & Hunt specializing in civil litigation. He can be reached at (613) 230-3232 ext. 307 or gjones@shields-hunt.com.