The Court of Appeal rejected the theory that non-competition and non-solicitation clauses found in asset purchase agreements where the seller remains employed with the buyer are of a hybrid nature, featuring aspects of both business sale contracts and employment contracts.
The court concluded in this case that Sections 2089 and following of the Civil Code of Quebec would apply in such a context.
The case involves the sale of assets between Mr. Payette, Mr. Lafortune and Mammoet Crane Inc. (sellers) and Guay Inc. (buyer). Non-competition and non-solicitation covenants were signed by Mr. Payette in the asset purchase agreement, in favour of the buyer. At the time of the transaction there was also an agreement that Mr. Payette and Mr. Lafortune would work for the company for a period of six months after the transaction. However, Mr. Payette was dismissed before the expiry of the term.
The Court of Appeal Decision
The Court of Appeal ruled that the restrictive covenants found in the asset purchase agreement were mistakenly interpreted by the trial judge pursuant to the rules governing employment contracts as set forth at Articles 2089 and 2095 of the Civil Code of Quebec, and upheld the relevant clauses.
The Court of Appeal found that the evidence unequivocally showed that the clauses were included for the benefit of the sellers, in the context of the asset deal with Guay Inc., and not in respect of the employment relationship.
Surprisingly, the court also declared that the said clauses remained valid even though Mr. Payette's termination date was used in order to calculate the duration of his non-competition and non-solicitation obligations, which did not affect the conclusion that the clauses were included in the context of a business sale.
The important question in this case was to determine whether the restrictive covenants were included as part of an employment contract or business sale. Since Payette was dismissed without cause, it would not have been possible to enforce the non-competition clause had it been part of an employment contract.
In addition, the court affirmed that the parameters used in restrictive covenants (duration, territory and targeted activities) stay the same, whether they are found in employment contracts or business sale contracts, although tribunals will be more flexible in accepting such criteria in the latter case than the former.