Restrictive Covenants:
Conflicting Views in the Court of Appeal
Restrictive covenants have become commonplace in employment
contracts and our courts have had many opportunities to pronounce
on the validity or invalidity of specific clauses. Accordingly, one
might expect to find in the recent cases a degree of unanimity with
respect to certain basic questions concerning clauses of this nature.
Two recent decisions of the Court of Queen’s Bench indicate that no
such unanimity exists.
In Canadian Factors Corp. v. Cameron,1 the Court of Appeal
upheld a covenant prohibiting employment in a related enterprise
anywhere in Canada for five years. In very similar circumstances,
in Beneficial Finance Co. of Canada v. Ouellette,2 a covenant not
to engage in any competitive business “in any city or the environs
or trade territory thereof in which I have been located or employed
within one year prior to such termination” was held to be invalid.
Although the facts in the two cases were remarkably similar,
neither the court nor counsel in the Ouellette case appear to have
referred to the earlier Cameron decision. Both decisions involved
bare majorities, a five-man bench sitting on the two cases. Finally,
no judge was a member of both benches and, accordingly, the views
of ten members of the Court of Appeal are available for study –
although not all the judges wrote notes.
Cameron was office manager and assistant to the president of
Canadian Factors Corp. at the time of his departure. Within a
month of his resignation, he was engaged by Business Factors Cor-
poration, a close competitor. Ouellette, manager of the loan depart-
ment in the Ville Emard branch of Beneficial Finance Co. of Canada,
left that Company to join Alliance Finance Corporation in a similar
capacity, in the City of Montreal. It appears, in both cases, that the
employee resigned with the intention of taking employment with
a competitor.
To practitioners and litigants alike, one of the fundamental ques-
tions with respect to restrictive covenants is whether such clauses
are presumed to be valid or prima facie invalid, as contrary to public
order and good morals. The answer to this question will determine
1 [1966] B.R. 921.
2 [1967] B.R. 721.
No. 1]
NOTES
where the evidentiary burden lies, a matter of the utmost impor-
tance in this area. 2a Five of the ten judges who sat in these two
cases believe restrictive covenants to be prima facie valid while
the remaining judges either expressly or impliedly applied the pre-
sumption of invalidity.
The following opinions were expressed in the Cameron decision.
Casey, J., held that:
It was open to defendant to plead that the restrictive covenant was contrary
to public order without being obliged to allege and prove new facts, that
is, facts not already alleged in the declaration. But to do so he would
have been obliged to establish a text of law or a rule of jurisprudence to
the effect that all such restrictions are, prima facie at least, contrary to
public order and for that reason invalid.
This he could not do. There is no such text of law nor has any such
rule been established by decisions that are authoritative, reasoned and
constant.3
Rinfret, J., after an exhaustive review of the leading English
and Canadian cases, concludes that no presumption of illegality
exists.
Le fardeau de la preuve reposait sur ses 6paules
son allegation puisque c’est lui qui opposait
demandait son extinction (art. 1203 C.C.) …
(Cameron) d’6tablir
la nullit6 du contrat et
Je n’ignore pas non plus que, d’apras une certaine jusrisprudence, il
l’encontre des contrats en restriction
existerait une pr~somption d’illfgalit6
du commerce et de l’emploi. 4
Badeaux, J., concurred with the opinions of Casey and Rinfret,
JJ. The dissenting judges in the Ouellette case, Pratte and Rivard,
JJ. adopt the same view, which Pratte, J., expressed in the following
way:
Dans notre droit, la libert6 de contracter n’est limitke que par la ioi,
l’ordre public et les bonnes moeurs (art. 13, 990 et 1062 C.C.). Or, aucun
texte ne prohibant des conventions restrictives de la libert6 du salari6, i
s’ensuit que ces conventions sont licites, A moins qu’elles ne contredisent
quelque principe d’ordre public.
La liberth de contractor 6tant la rbgle, les conventions sont pr~sumeeb,
licites…5
The effect of the opposite view, that taken by Brossard and
Montgomery, JJ., in the Cameron case as well as Owen, J., speaking
2a The problem regarding the “burden” is, in the case of restrictive covenants,
further complicated by the fact that there is considerable confusion regarding
what must be alleged and proved to discharge the burden at all, i.e. does one
discharge the burden with proof of facts, purely and simply, and, if so, what
kind of facts must be proved ?
3 At p. 924.
4 At p. 929.
G At p. 728.
McGILL LAW JOURNAL
[Vol. 14
for the majority in Ouellette,G is made very clear in the following
statement by Montgomery, J.:
It will be seen that plaintiff had the burden of establishing that it was
reasonable for it to restrain defendant from approaching its clients and
prospects for a term of five years and from taking employment with any
other factoring concern or business with a similar purpose for the same
period. 7
Since the burden of introducing evidence in cases of this nature
will always be difficult to discharge, it is important that parties
either contemplating or already involved in litigation know where
it lies.
To further cloud the issue, two of the judges derive quite opposite
conclusions from a reading of the same cases, primarily the English
decision in Nordenfelt v. Maxim-Nordenfelt Guns & Ammunition
Company Limited.8 Rinfret, J., if the writer correctly understands
him, cites the case as a watershed in the history of restrictive
covenant law, whence the view emerged that such clauses were not
presumed to be invalid but must be tested according to the facts
of the particular situation. Montgomery, J., on the other hand, cites
the Nordenfelt case, in particular the decision of Lord Macnaghten,
to support prima facie invalidity.
A third view was expressed regarding the position of the common
law decisions in this sphere. Brossard, J., concludes that we should
cease our reliance on these decisions, on the grounds that the Que-
bec jurisprudence is sufficiently mature to answer such questions,
and that the law of England 9 differs in a material respect from
our own.
The restrictive covenant was struck down in the Ouellette case
because the area involved was “not defined or described with suf-
ficient certainty.” This result was achieved notwithstanding the fact
that Ouellette was in clear and wilful breach of the spirit, and, in
the minority’s view, of the letter of his contract and notwith-
standing the fact that he took employment on the island of Montreal.
The majority was not prepared, it is submitted, to view the clause
in the light of the facts. In the writer’s opinion, the approach adopted
by Pratte, J., dissenting, was more appropriate to the circumstances;
on the questionl of the area of operation of the clause, he says:
GIt must be pointed out that Owen, J., does not expressly adopt the view of
prima facie invalidity but he does cite with approval from the judgment a quo,
which does take that view.
7At p. 944.
8 [18941 A.C. 535.
9 In permitting the court to determine whether an equilibrium exists betveen
the obligation and the consideration received for it.
No. 1]
NOTES
(L)e juge a eu raison de dire que la d~signation qui en est faite ne permet
pas de le d6limiter avee pr6cision. Nanmoins, une chose est certaine: le
mot “environs”, en frangais comme en anglais, signifie les lieux circonvoisins.
Aussi, on peut dire, sans crainte d’errer, que le territaire pr6vu comprend
au moins la ville de Montreal et toutes les municipalit~s qui lui sont
adjacentes.O
It
is the writer’s opinion that, when dealing with restrictive
covenants
in employment contracts, the courts should interpret,
where necessary, and also consider the actions of the parties. This
flexibility has been adopted in cases involving the sale of a busi-
ness. In Sabourin v. La Compagnie de Pain National de Hull,”
Rivard, J., commented as follows:
Son intention de ne s’y point conformer parait dans toute sa conduite.
I1 a peut-6tre cru se conformer strictement h la lettre du contrat qui le
lait, mais il 6ludait dlib6r~ment l’esprit.12
In Cook v. BriseboiS,13 Lynch, J., basing his opinion on both
English and French authorities, upheld the validity of a perpetual
injunction although the covenant in question was not restricted in
terms to a particular locality. Although Lynch, J., would have
limited the application of the injunction to a smaller area than
that afforded by the judge who had issued the injunction in the
first place, what is significant is that he was willing to read into
the covenant a restriction as to applicability when it was apparent
from the context that the intention of the parties to the contract
was to restrain the vendor from soliciting former customers and
other persons in the very neighbourhood in which the business had
originally been carried on.’ 4
The valid principle of imposing stricter conditions when dealing
with restrictive covenants in employment contracts may be upheld
without completely ruling out the type of thinking demonstrated in
the above two cases.
Finally, the actual decisions in the two cases indicate a very
great disparity in judicial opinion, a disparity which can only lead
to continued uncertainty in the drafting of restrictive covenants
and in their application. It is to be hoped that the Supreme Court
of Canada, in its decision on the Cameron appeal, will answer the
fundamental question relating to the burden of proof and provide
some guidelines to what is “reasonable” in such clauses.
Peter M. BLAIKIE
10 At p. 728.
11 (1923), 29 R.L. n.s. 342 (B.R.).
12 Ibid., at p. 345.
13 (1899), 16 C.S. 46.
14 Ibid., at p. 49.
* Of the Bar of the Province of Quebec.
