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In Occidental Petroleum Corporation v Boguslawski, 2025 ABKB 578, the Alberta Court of King's Bench dismissed an application for a non-competition injunction against a former employee of the applicant.
This case is important because it describes the test for enforceability of a non-compete in the employment context, and highlights a number of ways these clauses can fail.
In addition, the successful respondent in this application was represented by Bow River Law employment lawyer Michael Hernandez.
Facts
The following were some of the pertinent facts summarized by Justice Burns:
- This application involved a former employer seeking to enforce a non-competition clause contained in an employment agreement of its former employee
- The employee had worked as a project engineer for around 6 years for Carbon Engineering ULC ("CE"), a climate solutions company that develops Direct Air Capture technology
- The employee resigned his position with Carbon Engineering, and a month later began working for a competitor called Phlair GmbH
- CE sued the employee, and asked the court for an injunction preventing the employee from working with Phlair
Analysis / Conclusion
The Court first identified the test for an injunction in the context of an employment non-compete as being the strong prima facie case. The strong prima facie case requires that the applicant will probably succeed at trial or likely succeed at trial.
The Court noted that in this case, a strong prima facie case required the applicant to show that (i) the restrictive covenant (non-compete) is reasonable and enforceable, and (ii) it has been breached. The Court went on to explain its analysis of these clauses in the employment context:
[11] This Court has previously set out the questions that must be answered to determine whether a restrictive covenant is enforceable in the employment context [...]. The questions include:
- Do the restrictions protect a proprietary interest that is entitled to protection [and would a non-solicitation covenant suffice]?
- Are the restrictions reasonable in their geographic and temporal scope?
- Is the breadth of the restrictions reasonable?
- Are the restrictions in keeping with public interest?
[12] The above analysis must be undertaken in the context of two further considerations: (1) the courts have historically recognized the need for heightened scrutiny of restrictive covenants in the employment context; and (2) ambiguous or overbroad restrictive covenants are prima facie unenforceable.
The applicant employer argued that the Court should apply less scrutiny in this case, on the basis that the former employee was a key-employee fiduciary. The Court disagreed, noting that he was an engineer with 3 levels of reporting above him and he did not have unilateral ability to exercise discretion.
The clause CE was trying to enforce was as follows:
5.1 You covenant and agree with the Company that you will not, without the prior written consent of the Company, at any time within the period of twelve (12) months following the termination of your employment for any reason, either individually or in partnership or in conjunction with any person, whether as principal, agent, shareholder, director, officer, employee, investor, or in any other manner whatsoever; directly or indirectly advise, manage, carry-on, be engaged in, own or lend money to; or permit your name or any part thereof to be used or employed by any person managing, carrying-on or engaged in a business which is in direct competition with the Company's business within North America.
The Court scrutinized the above clause as it applied to the surrounding facts in this case, and made findings on each part of the test regarding enforceability of non-competition clauses.
Proprietary interest
The Court found that the confidential information and trade secrets regarding new and emerging Direct Air Capture technology were legitimate proprietary interests. However, the Court found that a non-solicitation covenant would have adequately protected this proprietary interest, noting that non-competes are sometimes upheld where someone is a director, senior manager, or personified the business, but the employee here did not fit into those categories.
Temporal scope
The Court found that the 1 year restriction was reasonable in the circumstances.
Geographical scope
The Court noted that geographical scope "should, in principle, be limited to the territory in which the business operates." The Court found the clause was unreasonable in this regard as follows:
[50] Considering the parties' relative bargaining positions and the fact that the Applicants only operate their business in British Columbia and Texas, a restriction to all of North America is unreasonable. The Applicants do not operate in Mexico, nor do they purport to have customers there.
Breadth of Restriction
The Court found that the clause covered "fuel synthesis" and "air to fuel processes", which are not areas CE operates in. This resulted in a finding that the clause went beyond what was reasonably necessary to protect their interests.
The Court found that the clause's reference to "in direct competition" lead to ambiguity because it was not clear if that would apply broadly or narrowly or whether it would apply to those companies selling CDR credits to customers in North America, whether those companies themselves were in North America or not. The Court also found that it was not clear whether the clause would cover passive investment in a competitor's business or investment in mutual funds holding shares of a competitor.
The Court provided some additional reasoning supporting its conclusion that the clause was overbroad, as follows:
[61] The activities the Non-Competition Covenant attempts to restrict are also too broad. The clause attempts to limit [the employee] from being involved "in any manner whatsoever" in any business that is in "direct competition" with CE. A clause that prevents an employee from being involved in a competitive business in a role of any kind has been found to be overbroad [...]
[62] Here, what the Applicants have asked for goes well beyond merely restricting employment. The breadth of the clause, especially considering the phrase "or in any manner whatsoever," even tailored as it was to businesses that are in "direct competition," is such that it could (and would) capture conduct that is far removed from the core of CE and the Applicant's business, such as passive investment. This is a hallmark of an overbroad clause.
[63] Additionally, persuasive authority from Canadian courts have held that where a restrictive covenant prevents a former employee from being a passive investor in a competing entity it is unreasonable [...]
[64] Either ambiguity alone would likely be fatal to the applicability of the Non-Competition Covenant. [...]
Public Interest
The Court found that if the restrictive covenant had been found to be reasonable, the public interest would have favored enforcing it. The Court found that the employee would still have been able to work as an engineer or project manager and the DAC industry would not have been overly harmed by losing one engineer who was not an industry-leading expert in the field.
Employee Acknowledgment of Reasonableness? – The non-competition covenant in the employment contract contained an acknowledgement by the employee that it was reasonable. [JF Note – almost all such covenants have an acknowledgment of a similar nature].
The employer argued that this acknowledgment should assist it in establishing reasonableness of the clause. The Court noted that it is not bound to agree with such an acknowledgement, but it is a factor in assessing reasonableness. But the Court found this could not cure the ambiguity or overbreadth of this clause "on its own", and noted that it was also relevant that: (1) this was the employment context, where the employee was one of many project engineers, and (2) there was no evidence that he negotiated the employment agreement.
In the result, the test for an injunction was not met and the application was dismissed.
My Take
The clause in this case was similar to many we see as employment lawyers on a regular basis. It is extremely difficult to draft a non-competition clause that ends up being enforceable at the best of times and for so many reasons, including that the Courts, frankly, do not generally love the idea of preventing someone from working.
This case should serve as an example of how difficult it is to enforce a non-competition covenant, and as an example of the arguments respondent employee can use to resist an injunction application related to a restricted covenant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
