Employees sometimes worry that accepting a job with a competitor or starting their own business could lead to legal action from their former employer. In LivingArt Kitchens Inc. v. M., 2024 ONSC 3088, the Ontario Superior Court refused to grant a broad injunction that would have significantly restricted several former workers from continuing to work in their industry.
The decision reinforces an important principle of Ontario employment law: unless an employee is bound by a valid and enforceable restrictive covenant or owes fiduciary duties to a former employer, they are generally free to compete after leaving their job. It also highlights the high legal threshold an employer must meet before a court will prevent someone from earning a living.
Background
The plaintiff was a kitchen cabinetry company specializing in high-rise residential construction projects. The defendants included a project engineer who had worked as an independent contractor, a corporate sales manager, and a junior project engineer. Each left the company at a different time.
After their departures, the plaintiff alleged that the defendants had taken confidential information, breached contractual obligations, and helped a competing business obtain projects that otherwise would have been awarded to the plaintiff.
The plaintiff sought an extensive injunction that would have significantly restricted the defendants’ ability to continue working in their field. Among other things, it asked the court to prevent them from competing throughout Canada and the United States, freeze personal and corporate assets, require the return and destruction of electronic files, and order detailed financial accountings. The motion was based on an evidentiary record of approximately 10,000 pages.
What the Court Decided
The court dismissed the injunction motion in its entirety. To obtain an injunction, the plaintiff had to establish that there was a strong case supporting its claims, that it would suffer harm that could not be adequately compensated through damages, and that the overall balance favoured granting the injunction.
The court found that the plaintiff had not met these requirements. It concluded that the claims contained significant factual and legal weaknesses, that the alleged harm was largely speculative, and that the proposed injunction would cause serious harm to the defendants by restricting their ability to work and earn an income.
Employees Generally Have the Right to Compete
The court confirmed that ordinary employees are generally free to work for a competitor or start a competing business after leaving their employment. Employees may use the general skills, knowledge, and experience they developed throughout their careers, provided they do not misuse confidential information or breach a valid legal obligation.
The court distinguished ordinary employees from a limited category of senior or key employees who may owe fiduciary duties to their employer. Two of the defendants were found to be ordinary employees who did not have ongoing duties preventing them from competing after leaving.
Non-Competition Clauses Face Significant Legal Hurdles
One defendant argued that an employment agreement containing non-competition and non-solicitation clauses had been signed under pressure and without independent legal advice. Another denied signing an agreement containing restrictive covenants and alleged that the document produced by the plaintiff was not genuine. A third did not have a non-competition clause in the employment agreement at all.
The court noted that even where non-competition clauses exist, they may be unenforceable under Ontario’s Employment Standards Act, 2000, which generally prohibits non-competition agreements except in limited circumstances.
Whether a restrictive covenant is enforceable depends on its wording, the surrounding circumstances, the employee’s position, and the specific facts of the case. Employees should not assume that a non-competition or non-solicitation clause is automatically valid simply because it appears in a signed contract.
A Job Title Does Not Automatically Create Fiduciary Duties
The plaintiff also argued that the defendants owed fiduciary duties that restricted their ability to compete or solicit clients after leaving. The court rejected this argument.
Fiduciary duties apply only in limited circumstances. Holding a management title, having access to important information, or performing significant responsibilities is not enough on its own. The employee must have had genuine authority to exercise discretion over the employer’s legal or business interests in a way that placed the employer in a particularly vulnerable position.
Based on the evidence, the court found that none of the defendants met this demanding standard.
Speculative Harm Does Not Justify an Injunction
The plaintiff argued that it would suffer irreparable harm if the injunction was not granted. Irreparable harm refers to harm that cannot be adequately addressed through financial compensation after a trial.
The court found that the plaintiff had not provided convincing evidence of this type of harm. It did not produce financial statements, accounting evidence, or other objective proof showing that the defendants’ activities had caused losses that could not be calculated.
The evidence also indicated that the plaintiff’s revenues had increased after the defendants left, which weakened its claim that it faced immediate and irreversible financial harm.
Preventing Someone From Working Requires Strong Evidence
When deciding whether to grant an injunction, courts consider which party would suffer greater harm if the requested order were granted or refused.
In this case, the court found that the proposed injunction would cause substantial harm to the defendants because it would effectively prevent them from working in their chosen industry and earning an income.
By contrast, the plaintiff remained an operating and growing business. If it eventually proved its allegations at trial, it could seek financial damages. The court therefore found that the balance strongly favoured allowing the defendants to continue working while the lawsuit proceeded.
Key Takeaways for Employees
- Most employees are free to compete after leaving a job. Unless you are bound by an enforceable restrictive covenant or owe fiduciary duties to your former employer, you are generally free to work for a competitor or start a competing business.
- You may use your general skills and experience. A former employer does not own the general knowledge, professional abilities, and industry experience you developed throughout your career. However, employees must still avoid misusing confidential or proprietary information.
- Non-competition clauses are difficult to enforce in Ontario. The Employment Standards Act, 2000 generally prohibits non-competition agreements except in limited circumstances. Even where a clause exists, its enforceability depends on the wording and facts of the case.
- A management title does not automatically make you a fiduciary. Courts examine the employee’s actual authority and responsibilities rather than relying only on a job title or level of seniority.
- Employers need strong evidence to obtain an injunction. Courts will not normally prevent someone from earning a living based only on unproven allegations or speculative claims of future harm.
- Pressure, authenticity, and changes to a contract may matter. If you signed an agreement under significant pressure, believe a document was altered, or dispute whether you signed it at all, these may be important issues for the court to consider.
- You may still have claims against your former employer. Two defendants in this case advanced wrongful dismissal counterclaims while defending the injunction motion. Being sued by a former employer does not prevent an employee from pursuing their own legal entitlements.
Get Advice Before Responding to a Former Employer
If your former employer is threatening legal action, alleging that you breached a restrictive covenant, or seeking an injunction to prevent you from working, it is important to obtain legal advice as soon as possible. Injunction proceedings can move quickly, and the way you respond may significantly affect the outcome.
Contact Monkhouse Law today to schedule a free 30-minute phone consultation and learn more about your rights.