A recent decision of the Court of Queen’s Bench of Alberta examines the fiduciary obligation a sports agent owes to his or her employer/agency. Furthermore, it examines the extent to which non-solicitation agreements affect the communication and solicitation an agent may engage in with former clients and/or employees.
Evans v The Sports Corporation, 2011 ABQB 244 was an action brought by Mr. Richard Evans (“Evans”) against his former employer, The Sports Corporation (“TSC”), a sports agency based out of Edmonton, Alberta. The principles of TSC are Ritch Winter and Steve Kotlowitz.
The Evans case examines the breach of non-solicitation clauses in the player agent context and outlines the ways in which courts have addressed the fiduciary obligations a player agent owes to his or her agency.
FACTS AND KEY ISSUES
TSC is in the business of representing professional hockey players. Evans brought an action against TSC for damages and payments allegedly owed to him resulting from his employment relationship with TSC. Upon the termination of his TSC contract in 2006, Evans started his own hockey agency. Several TSC clients subsequently terminated their relationship with TSC in favour of working with Evans.
Two clauses in the employment agreement between Evans and TSC (the “Agreement”) became key at trial: first, a lockout clause that was meant to suspend salaries and protect TSC from lost revenues during the impending 2004-2005 NHL Lockout (the “Lockout”), and second, a non-solicitation clause prohibiting Evans from directly or indirectly soliciting TSC clients or employees. Under the Agreement, Evans was only authorized to solicit his own clients.
The main issues discussed by the court may be summarized as follows:
- Salary issues resulting from: (a) the early termination of Evans’ employment, (b) the suspension of salary payments during the Lockout, and(c) bonuses in relation to the signing of Radim Vrbata (“Vrbata”) as a TSC client.
- Whether Evans breached the Agreement by attempting to solicit any TSC employees within 24 months from the end of his employment with TSC.
- Whether Evans breached the Agreement by attempting to solicit any TSC clients within 24 months from the end of his employment with TSC.
- What type of damages should be awarded?
These issues are examined in greater detail below: 1. Salary Issues
(a) The Court held that where an employment agreement is for a fixed term, both parties are entitled to hold one another to provisions of the agreement. As such, Evans was entitled to be paid for the period of time between when he was asked to leave TSC and the expiration date of his contract.
(b) Evans was unsuccessful in arguing that non-payment of his regular wages during the Lockout constituted a breach of Section 4 of the Employment Standards Code (the “Code”) which provides that parties cannot contract out of the Code. Evans essentially argued that by not paying a salary during the Lockout, TSC had attempted to provide less than minimum wage. The court held that a "wait and see" approach was to be used in such situations. Accordingly, the salary provisions regarding the Lockout should not have been declared void from the outset.
(c) The Court held that Evans was entitled to receive the bonus he should have received by signing Radim Vrbata while still employed by TSC.
2. Fiduciary Obligation & Solicitation Issues
The court in Evans discusses the fiduciary obligation a sports agent owes to his or her agency. Evans establishes that it does not necessarily matter whether the sports agent has hiring or firing power or control over other employees. The most important factor is the discretion or power the agent has and how he or she may exercise that discretion in negotiating contracts and servicing clients’ needs. In these cases, one may be held to have breached a fiduciary obligation owed to their employer. In this case, the Court held that Evans breached his fiduciary duty to TSC.
This fiduciary obligation stemmed from TSC providing Evans with almost complete control over the Czeck-Slovak hockey player pipeline for 6 years. During that time, Evans became closely connected with TSC clients in the region. To many of those young hockey players, Evans was the only senior TSC employee that they had known and worked with. As such, the Court held that Evans did owe a fiduciary obligation to TSC.
Soliciting Employees: Evans was in breach of the Agreement by soliciting TSC employees to provide services to him and his new sports agency. The Court held that, while not technically “employees” as indicated by the Agreement, TSC agents would be deemed as such for the purpose of solicitation.
Soliciting Clients: There was no evidence that Evans directly solicited any former TSC clients. Instead, the court held that Evans indirectly solicited by turning a blind eye to the activities of Mr. Henys and Mr. Kadlecek (former TSC employees) who were pursuing clients on Evans’ behalf.
3. Should the Lack of a Geographic Restriction on the Non-Solicitation Clause be a Bar to Enforceability?
The court held that TSC was able to enforce the non-solicitation restriction, despite the fact that there was no geographic restriction built into the provisions of the Agreement. The court held that there was no clear reason not to prevent someone from dealing with former clients for a reasonable period of time, wherever that client may be geographically located.
4. The Appropriate Non-Solicitation Period for Sports Agents
The court also held that the two-year non-solicitation period was not unreasonable.
Evans was entitled to $32,102 USD from TSC and $2,016 for unpaid salary and bonuses. By breaching his fiduciary obligations, Evans was not entitled to any further compensation.
TSC was entitled to damages resulting from Evans’ breach of the non-solicitation provisions of the Agreement and breach of his fiduciary duties to TSC. TSC recovered 50% of the profit generated in the two years following Evans’ departure, 5% for subsequent seasons and other related income for a total of $194,168.10 USD.
Central to this decision is the judge’s analysis of what Evans was and was not allowed to tell clients when he was leaving. After discussing some cases involving lawyers and other professionals who departed their employment, the judge said:
“Giving a departing professional the right, let alone an obligation, to advise clients that they have the right to follow him essentially negates any non-solicitation obligations that may exist for fiduciaries or under contract. In my view, that goes too far. I agree with a right and duty to advise of departure. Beyond that any direct or indirect solicitation should be governed by fiduciary duties (if any) or by contracts, or by the rules of their professional associations. The clients of professionals can find out their rights from others, not from the departing professional him or herself.... The cases referred to above, and the principles relating to the rights and duties of departing professionals, do not entitle any departing employee who has a personal relationship with clients to do any more than notify his or her clients that he has left. There is certainly no general duty (or right) to advise clients that they have a choice as to whether to stay, follow, or find someone new.”
While not professionals in the sense that they belong to self-regulated industries, sports agents hold a position of critical importance to the careers of their clients who typically are not experts in the matters in which they rely on their agents for advice and guidance. This decision puts the agent in the difficult position of having an obligation to advise of his departure, but not being able to answer his client’s obvious first question: “What does this mean to me?”
Equally importantly, an agency contemplating bringing on an agent from a competitor will want to tread softly before concluding that something as basic as letting the new agent’s former clients know that they have options available to them is a wise or even permissible course of action. It is not uncommon for litigation of this nature to be brought against not only the departing employee, but also any agency hiring that individual on the theory that the agency induced breach of contract, or is vicariously liable for damages resulting from a finding of breach of the new agent’s fiduciary duties to his former employer.
This decision should leave departing agents (and their new employers) with a significant amount of unease about liability arising from dealing with clients of the agent’s former agency.