By Stephen Dugandzic
In Great North Equipment Inc v Penney, 2024 ABKB 533, the Alberta Court of King’s Bench examined the enforceability of non-solicitation and non-competition clauses within a shareholders’ agreement, focusing on the issue of consideration.
Background:
Great North Equipment Inc. sought to enforce restrictive covenants—specifically, non-solicitation and non-competition clauses—against former employees who had signed a joinder agreement to become part of the company’s shareholders’ agreement. These clauses were intended to prevent the employees from competing with or soliciting clients from the company for two years following the end of their employment.
Issue of Consideration:
The central legal question was whether the restrictive covenants were enforceable, given the absence of explicit consideration provided to the employees for agreeing to these terms. The joinder agreement did not specify any benefits or rights conferred upon the employees, nor did it detail any consideration exchanged for their agreement to the restrictive covenants.
Court’s Analysis and Decision:
Justice Lema found that there was no legal consideration provided by the employer to the employees for entering into the joinder agreement containing the restrictive covenants. The agreement was silent on any benefits or rights afforded to the employees, and there was no evidence of any exchange of value that would constitute consideration. As a result, the court held that the non-compete and non-solicit clauses in the shareholders’ agreement were not binding on the employees.
Implications:
This decision underscores the importance of providing clear and explicit consideration when seeking to enforce restrictive covenants in employment-related agreements. Employers must ensure that employees receive something of value in exchange for agreeing to such clauses; otherwise, the covenants may be deemed unenforceable due to lack of consideration.
*Always seek legal advice. The above is for information purposes only.
Stephen Dugandzic received his Juris Doctor degree from the University of Alberta in 2013 and is Calgary-based. He previously practised with Bennett Jones LLP and Taylor Janis LLP before founding YYC Employment Law Group in 2018.