Wednesday, October 5, 2011

Dance Instructor found not to be a "Key Employee"

I've occasionally discussed restrictive covenants before; what I haven't covered in much detail is the route that employers can occasionally go to prevent unfair competition by former employees who haven't signed restrictive covenants.

At common law, there is a concept of fiduciary duties, which is an obligation on one person to put another's interests ahead of his own.  Professionals often owe their clients fiduciary obligations, and occasionally you get case law where a professional abused information received in confidence to their own advantage.

In the employment context, "key employees" may be considered to be fiduciaries of their employer, and are not permitted to use confidential information they acquired in their employment to unfairly compete with the former employer.  A "key employee" is defined by the following non-exhaustive list:

  1. An integral and indispensable component of the management team that is responsible for guiding the business affairs of the employer;
  2. Necessarily involved in the decision-making process; and
  3. Therefore, has broad access to confidential information that if disclosed would significantly impair the competitive advantages the former employer enjoyed.  
Absent a restrictive covenant or fiduciary obligations, former employees are free to compete with former employers, including bringing to a new business the skills and knowledge acquired while serving the former employer.  But restrictive covenants can limit that (if enforceable, which is not easy), and fiduciary obligations do as well in very similar ways.

In the recent case of Laplante v. Hennessy-Craibe, Laplante operated a dance studio in Cornwall and had employed Hennessy-Craibe as a dance instructor until she left to start her own studio.  It appears that several students went with her.  Laplante then sued and sought an interlocutory injunction preventing Hennessy-Craibe from soliciting current and former students.

This is surprisingly similar to Gatreau v. Arvelo (2004), also involving a defecting dance instructor, in this case from an employer in Brockville.  I suppose Eastern Ontario must have a competitive industry for dance instruction.  Similarly, in that case, the plaintiff alleged that the instructor was a fiduciary, but the judge rejected it.

In Laplante, even without referring to Gatreau, Justice Quigley came to the same conclusion:  He did not see a serious issue to be tried, and felt that even if a trial judge ultimately found Hennessy-Craibe to be a fiduciary, Laplante could be compensated through an award of damages; therefore, he declined to award the  injunction sought.


There is also previous jurisprudence considering whether or not written restrictive covenants can be enforced against athletic instructors.  Of course, every case is unique on its facts and the specific language of these clauses, but Courts have gone both ways when determining whether or not an athletic school is protecting 'legitimate proprietary interests' with restrictive covenants:

In Gold in the Net Hockey School Inc. v. Netpower Inc., a 2007 Alberta case, the Court found that a non-competition clause did not protect a hockey school's legitimate proprietary interests.

In Moffatt v. Sanchez, a 2004 Ontario decision involving a Tae Kwon Do academy, a non-competition clause was enforced against the former head instructor.


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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