Injunction on Faithless, Family Fiduciaries
Lifted After One Year

Author: Dean Crawford, KC

October 19, 2022 Topics: Blog, Injunctions

Forward Signs Inc. v. Philcan Group Inc., 2022 ONSC 5593

The Ontario Superior Court lifts an interim injunction on two departed fiduciaries, finding that one year was more than adequate to protect the plaintiffs from the springboard effect of the employees’ rather egregious pre-departure conduct. The absence of evidence of the Plaintiffs’ efforts to secure their business or employees during the period of the injunction influences the Court in declaring the order spent.

A recent Ontario decision offers a helpful overview of the principles guiding the courts in assessing the appropriate length of injunctions designed to protect an employer from the springboard effect of unfair competition by a departed fiduciary. It also offers an interesting view of the courts’ expectations of plaintiffs during the period of protection afforded by an injunction.

The plaintiff companies’ commercial sign design, fabrication and installation business was owned by two brothers, with Simon Ho owning 60% and Philip Ho owing 40%. Philip and his son Raymond (also a senior employee of the same business) secretly formed a new company to compete with the sign business. In a brazen breach of their obligations, they commenced their competing business and began soliciting the plaintiff business’s clients and employees – all while still employed by the company Philip co-owned with his brother Simon.

While Philip and Raymond were not subject to non-solicitation or non-competition covenants, in the Court granted an injunction in a September 2021 decision, finding they were fiduciaries.  The order, which was granted pending a disposition of the matter, prevented the defendants from “approaching, contacting or soliciting” any current or pipeline customers, or any customers to which or to whom the plaintiffs had provided services during the three years prior to the date of the hearing, which included general contractors from whom the plaintiffs had received referral business. The order also prohibited “approaching, contacting or soliciting” any of the plaintiff’s current employees.

The plaintiffs brought a motion, just over a year later, to continue the terms of the interim injunction. They argued that the first decision precluded the defendants from exploiting any contacts made while in the plaintiffs’ service, that they had breached the order and hence the injunction should be extended.

The Court disagreed with the plaintiffs’ interpretation, finding that the words “contacting, approaching, and soliciting” were all active verbs which connote an active effort by the defendants. The order did not prohibit the defendants from passively “being in contact” when approached by customers or by the plaintiffs’ employees.

The Court then turned to the matter of assessing the appropriate length of an injunction to protect employers from unfair competition by departing fiduciaries. It agreed with the approach taken by the Alberta Court of Appeal in Anderson Smyth and Kelly Custom Brokers Ltd. v. World Wide Custom Brokers Ltd., 1996 ABCA 169 CanLII), where the Alberta Court stated:

[32]                       In my view, the duty of a departing fiduciary employee subsists for so long after his termination as is reasonable in the circumstances to enable the former employer to himself contact his clients and attempt to retain their loyalty. The length of that period will obviously be affected by the nature of the position held by the departing employee. Generally, the higher the level of trust and confidence reposed in the employee, with a corresponding vulnerability of the employer, the longer the period will be. Following the expiry of that period the departing employee is in the same position as any other former employee turned competitor -free to contact the clients of his former employer for the purpose of inducing them to follow him.
(emphasis in Forward Signs Inc.)

Almost all of the decisions since Anderson, the Court found, have set the length of the injunction at six to twelve months.  Hence, more than 12 months, the injunction granted to the Plaintiffs was already at the high end and had served its purpose.

The one issue that gave the Court pause, however, was whether the conduct of the defendants over the prior year “has undermined the plaintiffs’ ability to respond to their unfair competition.”

The Court considered a prior decision by Strathy J. (as he then was), which considered the effect of an employee’s breach of a six-month non-solicit covenant. In that decision, the Court extended the period of the injunction, finding that the defendant had been in breach of the covenant for four months and the plaintiff had not had the “necessary tranquility and stability to repair its business relationships.”[1]

That was not the case in respect of the plaintiffs’ sign business, however. There was no evidence of active solicitation or communication by the defendants with the plaintiffs’ business over the prior 12 months.

But the Court was also concerned with the Plaintiffs’ conduct in the preceding 12 months, repeatedly noting an absence of any evidence of their efforts to secure its client base and employees during the period of the injunction:

[56]      Breaches or not, the plaintiffs have not shown that they need more time to take steps to protect themselves from the effects of the defendants’ springboard into competition in the marketplace. The plaintiffs do not say what they have done, if anything, to contact customers or to try to retain employees. The plaintiffs offer no evidence that any acts by the defendants actually interfered with the plaintiffs’ ability to take steps to secure their relationships with customers and employees. They do not say that they tried but could not contact their customers effectively within the past thirteen months.

While the period of the injunction, at 12 months, was already long, the Court’s decision leaves open the possibility that it may have extended it further had the plaintiffs demonstrated that they had tried to secure their business and employees but had not been able to do so. Given the severity of the defendants’ initial breach of fiduciary duty, one wonders if the Court may have lengthened the injunction if the plaintiffs’ had come to court showing their diligent efforts were not enough in light of the original breaches by the defendants.

The lesson in this for employers is to apply themselves diligently to securing their business and employees if granted a springboard injunction. While in this case the injunction was in place for more than a year, it would not be unusual for parties in similar litigation to find themselves before the court again mere weeks or months after an interim injunction is granted. In that case, the employer should be prepared to demonstrate to the court that it is making sufficient efforts to secure its customers and employees.

[1] Precision Fine Papers Inc. v. Durkin, 2008 CanLII 6871 (ONSC), at para. 39.