Saturday, April 2, 2011

Enforcing a Non-Competition Clause

A recent decision from the Ontario Superior Court of Justice, Dent Wizard v. Catastrophe Solutions, could have important implications for non-competition agreements.

Robert Pietrantonio had been the head of Dent Wizard Canada, a paintless dent repair (PDR) company, the Canadian franchisee of Dent Wizard International. He sold the franchise back to DWI and became an employee, then later (in 2007) signed a termination agreement with a non-competition clause.

Following a major hailstorm in Calgary in 2010, DWI failed to take full advantage of the business opportunity presented thereby. Dent Wizard executives and technicians went to Pietrantonio, who at that point was enjoying his retirement on the links in Florida. Pietrantonio started up a new company, Catastrophe Solutions, primarily to capitalize on the Calgary storm.

By the time DWI came around and decided to send technicians to Calgary three weeks after the storm, it had already lost its major contracts with various insurers. Catastrophe Solutions, on the other hand, made millions.

But what about the non-competition clause?

Following the Shafron case, his non-comp was seen as being part of an employment contract (as distinct from a commercial sale contract), which calls for closer Court scrutiny of the reasonableness of its terms.

The issues in this case are complex and myriad, but while the Court's finding that the restrictive covenants are unenforceable is, perhaps, uncontroversial, some of the Court's alternative findings (i.e. if the covenants had been enforceable) are more interesting:

Dent Wizard was leaving its customers high and dry, so to speak, and was exposed to possible litigation for having done so. It was content to allow Catastrophe Solutions to step in and pick up the slack, and therefore was estopped from later suing Catastrophe Solutions. And further, the reason the customers refused to come back to Dent Wizard was because it had left them high and dry (and not because Catastrophe Solutions had come along), so Dent Wizard was the author of its own misfortune and suffered no damages through Pietrantonio's actions.

[189] Notwithstanding that DWC effectively abandoned the business opportunity of serving the PDR needs of Aviva and Intact following the July 12, 2010 hailstorm as a result of DWI’s withdrawal decision, Maracle imposes a significant burden on the respondents to establish promissory estoppel. Certainly McNamara did not give any express assurance to Pietrantonio which was intended to affect the legal relationship embodied in the Termination Agreement. Pietrantonio, through Morrison, floated the trial balloon of a royalty agreement, and it was shot down. Given that response by DWI’s President, I do not think that Pietrantonio could reasonably take from the reading of the Intact and Aviva Confirmation Emails to him by Morrison that DWI was providing him with an unambiguous assurance that it would not enforce the restrictive covenants; DWI was hedging its bets. I think Pietrantonio’s approach throughout was to the effect, “If you are not going to tell me to stop, then I’ll go ahead”. Pietrantonio elected not to clarify matters directly with McNamara, and by proceeding with CSI he took on the risk that he might be skating on very thin ice which could crack at any moment.

[190] Yet, at the critical times in July when CSI was moving to meet Aviva and Intact’s business needs with, as I have found, the knowledge of the applicants, that ice did not crack. The applicants’ executives stood by silent, content I think, to allow CSI to mollify Aviva and Intact, thereby reducing the risk that either customer would sue DWC for leaving them high and dry in their time of need.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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