THE CANADIAN EMPLOYEE COMPETITION BLOG

Telus Communications Inc. v. Golberg, 2018 BCSC 1825

A battle between corporate titans Telus Communications and Rogers Media highlights the danger of “overzealous drafting” of restrictive covenants, which enabled a former Telus executive to compete against his former employer. At the same time, the Supreme Court of British Columbia rebukes the defendant, finding he breached his fiduciary duty to Telus by “actively pursuing a termination payment while negotiating the terms of his new employment at Rogers Media.”

In Telus Communications Inc. v. Golberg, 2018 BCSC 1825, Telus applied for an interlocutory injunction restraining the defendant, Daniel Golberg (Rogers Media was not named as a party), from commencing or continuing his employment with Rogers on the basis of a non-compete clause in his employment agreement. The decision is notable as an example of the “less is more” maxim when it comes to drafting restrictive covenants. The court held that the covenant was ambiguous and overly broad due to the insertion of language which, in hindsight, was not necessary to protect the legitimate interests of Telus.

Golberg commenced employment with Telus as a Vice President in 2005 and remained at the VP level until his departure in August of 2018. His 2005 employment agreement contained a non-compete clause which prohibited him from competing with Telus for a period of time following termination of employment. The covenant contained the following terms:

…the vice president will not, without the prior written consent of Telus, directly or indirectly either individually or in partnership or jointly or in conjunction with or on behalf of any person or persons, firm, association, syndicate, corporation or other enterprise, as principal, agent, employee, director, officer, shareholder or contractor or in any other manner whatsoever:
1) carry on or be engaged in executive, management, supervisory or strategic work or participate in, make decision ins respect of, direct, assist with, contribute to, advise on, provide consulting or other services in respect of any strategic management, supervisory or executive matters for any person or persons, firm, association, syndicate, corporation or other business enterprise engaged in or concerned with or interested in any business which is competitive with the business of Telus within the provinces of British Columbia, Alberta, Ontario and Quebec.

In June 2018, Golberg commenced discussions of potential employment with Rogers, a Telus competitor. He did not disclose these discussions to Telus and continued to participate in meetings to develop Telus’s business strategies, including discussions to compete with Rogers.

During this time, Golberg also expressed his concerns to Telus about his career advancement and requested a severance package if he were to leave the company. When Telus did offer him a package as part of an extended 24-month non-competition covenant, he declined the offer and subsequently informed Telus he was resigning to commence employment with Rogers.

Telus applied for an interlocutory injunction to enforce the restrictive covenant. The first issue addressed by the court was the level of scrutiny to be applied to the non-compete clause. The court relied on prior case law which presumes an inequality of bargaining power in an employee/employer relationship and applied a high level of scrutiny to the covenant, despite noting that Golberg was a “well educated, accomplished business person.” The court declined to follow an earlier 2018 decision from a different Justice, Quick Pass Master Tutorial School Ltd. v. Zhao, 2018 BCSC 683. In the latter decision, the court held that because the inequality of bargaining power between the parties was less than that usually presumed in an employment relationship, the restrictive covenants were not subject to a high level of scrutiny.

The court in Telus noted that Quick Pass was the only authority cited in which it was held that the court can apply a lesser standard of scrutiny in an employee/employer relationship if it is satisfied that there was not an inequality of bargaining power. It further noted that the particular passage relied on by Telus, arguably, was obiter dicta.

Having decided to apply the usual high level of scrutiny to restrictive covenants connected to an employment relationship, the court had little apparent hesitation in finding that the non-competition clause in Golberg’s agreement was overly broad and ambiguous and hence unenforceable.

The court first noted that the definition of “Telus” in the restrictive covenant included any and all present or future affiliates of Telus. The difficulty was that Golberg’s activities while at Telus were restricted to the telecommunications industry. As the court noted, however, the clause “purports to preclude Mr. Golberg from taking a senior management position in any company that competes with any activity that Telus or its affiliates now or in the future may engage in.”

The court went on:

[35] I find this problematic because the interest of Telus that is identified as requiring protection is its telecommunications business. The restrictive covenant is, however, not limited to such businesses. Telus is a multibillion dollar company. The restrictive covenant extends to any company or other form of organization that Telus may in the future acquire regardless of the business activities of that company.

[36] As I already stated the onus is on Telus to establish that such restrictions are reasonably necessary to protect its interests and do not unduly restrict the ability of Mr. Golberg to make use of his talents and skill. I find that Telus has not met that onus.

[37] In my view, the restrictive covenant is the product of overzealous drafting by Telus’s solicitors. The entire focus of the covenant appears to be directed to making the covenant as broad as possible without giving adequate consideration to the important interests that Telus seeks to protect in the covenant or the interests of Mr. Golberg as an employee.

The court concluded that the broad prohibition on working for any competitor of Telus or its affiliates, regardless of whether the new position was connected to Golberg’s role at Telus, made the clause overly broad. In essence, the drafter of the clause went too far and should have narrowed the restricted activity to the telecommunications industry and the role held by Golberg.

The court also found that the covenant was ambiguous and hence unenforceable. Again, the drafter of the clause went too far when describing the types of roles with a competitor that would be prohibited. The clause stated that Golberg would be restricted from working as “principal, agent, employee, director, officer, shareholder or contractor”, but concluded with the words “or in any other manner whatsoever”. The court found that the initial specificity of the types of restricted roles was lost by the addition of these words.

Having concluded that Telus had not met the test for an interlocutory injunction, the court nonetheless found that Golberg breached his fiduciary duty by inviting and negotiating a termination package from Telus (which he ultimately did not accept) at the same time that he was negotiating employment with Rogers. The court held that “when Mr. Golberg was seeking a termination package, he owed a fiduciary duty to provide Telus with frank and full disclosure about his employment situation.”

Notwithstanding these findings, the court found that Golberg was still entitled to compete, as long as he did so fairly, such as by maintaining his duty of confidentiality. The court stated it was prepared to entertain an application from Telus restraining Golberg from disclosing confidential information or engaging in unfair competition. While these were obligations that he had in any event, given Goldberg’s conduct with respect to negotiating the severance package, the court noted that “such an injunction may well be in order. While it falls short of the relief Telus seeks, it would provide additional incentive for Mr. Golberg to comply with his ongoing fiduciary obligations.” Telus subsequently stated in a Globe & Mail article that it would be taking up the court’s invitation.