In BC, functional approach will be used to determine whether an employment contract clause is a restraint of trade
- The case is Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97
- young veterinarian signs employment contract with an established practice (located in the beautiful Creston Valley)
- the employment contract stated:
The Associate covenants and agrees that in consideration of the investment in her training and the transfer of goodwill by CVC, if at the termination of this contract with CVC she sets up a veterinary practice in Creston, BC or within a twenty-five (25) mile radius in British Columbia of CVC’s place of business in Creston, BC, she will pay CVC the following amounts:
If her practice is set up within one (1) year termination of this contract – $150,000.00;
If her practice is set up within two (2) years termination of this contract – $120,000.00;
If her practice is set up within three (3) years termination of this contract – $90,000.00.
- Issue: whether this clause was enforceable
- BC Court of Appeal held (2-1) that the clause was enforceable
- The Court held that clause was a restraint of trade (even though the clause did not contain a typical non-compete clause)
- The Court made the “restraint of trade” determination using the functional approach and not the formalistic approach (in other words, even though the clause didn’t explicitly restrict competition, the effect of the clause did restrict competition)
- Despite the “restraint of trade” determination, the Court held that the clause was reasonable and declared the clause enforceable
This case will help clarify the approach to be used in BC when Courts in that province are faced with clauses which restrict trade by implication.
Will Ontario follow suit (and overrule that old gem: Inglis v. The Great West Life Assurance Co)?
It would be nice to see the Supreme Court of Canada weigh in on this issue.