Ontario court rules geographical limits in non-compete clause unenforceable

Aware Ads Inc. v. Walker et al

In Aware Ads Inc. (Aware Ads) v. Walker et al, Aware Ads requested the Ontario Superior Court of Justice to issue an injunctive relief that would prevent the defendants from competing with its business. Aware Ads also further made a request to freeze the assets of one of the defendants and a declaration that Aware Ads had equitable interest against one of the defendant’s homes. All three requests were denied by the Court.

Overview of the case

Aware Ads is an internet marketing company that specializes in online marketing. Greg Walker and Jasper Pirrie, the defendants, were both former employees of Aware Ads. Pirrie was terminated from Aware Ads in February 2020 while Walker stopped working for Aware Ads no later than October 2021.

Aware Ads claims that both defendants were subject to prohibitive clauses in their employment contract, including a 6-month non-compete clause and a 12-month non-solicitation clause. Aware Ads, however, was unable to reproduce a copy of Pirrie’s agreement. Pirrie incorporated his numbered own company in November 2020.

Aware Ads brought in an urgent motion requesting an interim order to stop Walker from competing with Aware Ads and soliciting its clients, as per the term of Walker’s employment agreement. It also sought to prohibit Walker and Pirrie from performing any work in a competitive business, Ice Offers, and asked that the court compel the defendants to disclose other individuals and entities involved in the business.

Court’s Decision

The court considered whether an injunction was warranted, which would prevent both defendants from continuing their work and interfere with their ability to earn a living. In doing so, it considered the evidence brought forth by Aware Ads, which was largely sparse.

Aware Ads speculated that Ice Offers is operating out of a condominium unit owned by Pirrie’s company. However, it failed to provide any proof to support their claim. In fact, there was evidence showing that Ice Offers may be operating out of Florida.

While Aware Ads needed to demonstrate that their claim was certain to succeed, it failed to even show that the defendants were actually affiliated with Ice Offers and failed to provide any solid evidence that the defendants had any relationship with Ice Offers at all.

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The Defendants also challenged the geographical limit of their non-solicitation and non-competition clauses. The Court found that the geographical limit of 150 km within the radius of Aware Ads was unreasonable since the business operates almost exclusively online and it would be difficult to determine where the services were actually performed.

The Court denied the request to issue an injunctive relief as Aware Ads was unable to show that they would certainly succeed at trial. They also denied Aware Ads’ requests to freeze Walker’s assets as well as declaring that Aware Ads had an equitable interest in Walker’s home. The latter is of interest as it is quite unusual for an employer to claim an interest in a former employee’s home.

Lessons for employees

Review your contract

Employees should always carefully review their employment contracts and pay particular attention to non-solicitation and non-compete clauses which the employer may try to rely on and enforce after the severing of employment. While courts will closely scrutinize the enforceability of such clauses, this more often than not will entail expensive litigation for the employee.

Lessons for employers

Gather strong evidence

Aside from the issue of the enforceability of their restrictive covenants, Aware Ads may have been too hasty in seeking an interim injunction without first conducting a thorough investigation that could tie the defendants to the business of Ice Offers. Employers should remember that an a court order must not be sought prematurely without strong proof to support the allegations put forth.

Geographic limits hard to defend

Employers are also advised to review their restrictive clauses as geographic limits, particularly in businesses operating mostly online, as determining where the work was performed will be very difficult.