Hmmm… some interesting things are happening out West with non-compete clauses in associate agreements (the first one involved a veterinarian associate in BC; the second one involved two dentist associates in Alberta). Here are some recent cases and my thoughts are at the end:
Unconventional Non-Compete (BC Case) = Enforceable!!!
In a recent B.C. case involving a veterinarian, the B.C. Court of Appeal enforced an unconventional non-compete clause. In Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97, a veterinarian (Dr. Steph Rhebergen) signed an employment agreement with a veterinary clinic (Creston Veterinary Clinic Ltd.) that contained a non-compete clause. The non-compete clause required Dr. Rhebergen to pay fixed sums of money to the Clinic if she “sets up a veterinary practice in Creston, BC or within a twenty five (25) mile radius” of the Clinic within certain timeframes after the termination of the employment contract. The amounts varied from $150,000 if her practice was set up within 1 year of the contract being terminated to $90,000 if her practice was set up within 3 years of the contract being terminated. This non-compete was unconventional because the amounts to be paid were based upon the occurrence of an event (as opposed to a breach of the contract) – namely, setting up a competing veterinary clinic within a restricted area.
Dr. Rhebergen challenged the non-compete and asked that it be declared unenforceable. The B.C. Supreme Court agreed, finding that it was an illegal penalty, unreasonable, and vague. The Court also cited the Ontario case of Lyons v. Multari in concluding that this was not an exceptional case warranting the enforcement of a non-competition clause.
On appeal, however, the B.C. Court of Appeal upheld the non-compete. The Court noted that the lump sum payment wasn’t an illegal penalty but rather compensation for the costs incurred by the veterinary clinic for training Dr. Rhebergen (which she acknowledged was reasonable). Further, the Court found that the non-compete clause was clear enough to be enforceable. If Dr. Rhebergen intended to provide veterinary services on a regular or continuous basis within the restricted area, then the non-compete would be triggered. The Court also took into account the factual matrix: there were no other veterinary clinics around, and given that there were only 8 dairy herds (patients / clients of the Clinic) in the restricted area where Dr. Rhebergen was interested in targeting, she would necessarily have to set up her practice within that restricted area. Dr. Rhebergen admitted that her intention was to set up a practice in order to compete with the clinic for its existing clients, thereby violating the non-compete clause. For these reasons, her case was dismissed.
Unconventional Non-Compete (Alberta Case) = Enforceable!!!
A recent Alberta case resulted in the Court upholding an unconventional non-compete clause.
In Jones v. Gerosa, 2016 ABQB 207, Dr. Robert Martin Jones sued two former associate dentists (Drs. Mary Gerosa and Jack Phan) for breaching identical non-compete clauses in their associate agreements after they resigned and set up a new clinic shortly thereafter. The non-compete clauses stated that the associates were not to be “engaged in the practice of Dentistry at any location with the City of Fort McMurray, Province of Alberta or a radius of fifty miles thereof”; the non-compete had no time limitation. Unconventionally, the non-competes said that the associates were free to practice anywhere so long as they purchased their portion of the goodwill from Dr. Jones’ clinic, calculated at $90,000 each.
Drs. Gerosa and Phan argued that the non-compete clauses were unenforceable because, among other things, they constituted an illegal penalty and were uncertain and unreasonable (namely, because 50 miles surrounding Fort McMurray was too large, there weren’t any time limitations, and they were contrary to the public interest).
The Alberta Court of Queen’s Bench, however, found in favour of Dr. Jones and ordered the associates to each pay him $90,000. The Court found that the permissive nature of the non-compete clauses constituted license fees to compete instead of an illegal penalties. The clauses were also clear and reasonable enough to enforce. Despite there being no time limits, the reality was that Drs. Gerosa and Phan set up their new clinic very quickly after leaving and acquired 800 patients from Dr. Jones’ clinic within the first 2 years, generating over $650,000 in fees. These facts, coupled with a lack of evidence to suggest that them each paying $90,000 would be crippling and tantamount to an absolute prohibition, led the Court to conclude that that amount was reasonable. There was also no evidence to suggest that the territorial restriction was too broad or unreasonable.
With respect to the non-compete clauses being unreasonable in the public interest, the Court wrote: “I do not think the public is too concerned about how much money dentists are able to generate from their practices, or what it may cost them to set up. There is ultimately no evidence as to any negative impact the clauses may have had on the public in Fort McMurray at the time.”
I think these cases are interesting because the non-compete clauses are permissive in nature; if you want to compete, you just need to pay. And that’s what makes them different from a traditional non-compete which, following the seminal Ontario case of Lyons v. Multari, are generally unenforceable except in exceptional circumstances (particularly given that a non-solicitation could have sufficed). I actually think the courts came to the right decision in not characterizing these payments as penalties but rather license fees to compete.
I think the biggest difficult I have in loving the BC Court of Appeal’s decision in Rhebergen v. Creston Veterinary Clinic Ltd. is that they didn’t (nor did they have to) give any credit to Lyons v. Multari – as the lower court in that case did. The BC Court of Appeal wrote a very SHORT decision and focused on issues such as reasonableness, the factual matrix, and the way in which the veterinary brought the legal challenge forward. I’m not in love with this decision.
I’m also not in love with the Alberta Court’s decision in Jones v. Grosa because there was no temporal limitation on the non-compete and because there was a general lack of evidence on a lot of the different topics that were important to the court’s ultimate decision. So the court simply looked at the facts (before and after material events took place) and made decisions with 20/20 hindsight.
These things being said, I do recognize that these courts were faced with an unconventional non-compete clause and unusual circumstances. I’m curious to see how an Ontario court – following Ontario laws but faced with an unconventional non-compete clause such as the one above – would decide cases like the two above. Keep in mind that an Ontario Court would be influenced to follow Lyons v. Multari as a starting point and NOT Rhebergen v. Creston Veterinary Clinic Ltd. (despite it being a BC Court of Appeal case) and NOT Jones v. Grosa (a decision from an Alberta lower court).
Please note that the information contained herein is for educational purposes only and is not intended to be relied upon for any legal advice. If you need legal advice, please contact me (Michael Carabash) or David Mayzel.
Non-solicitation clauses: it’s something we help Dentists with on a regular basis. If you have associates working for you, or are yourself an associate, you likely have already agreed to a non-solicitation clause. Read more
Here are some of the things that you, as an employer, must have posted in and around the dental office where your employees can see and refer to them on a regular basis:
The Occupational Health and Safety Act R. S. O. 1990 Chapter O.1 (the “OHSA“) is a piece of legislation which sets out the rights and duties of all parties in the workplace and provides the legal framework to making Ontario’s workplaces safe and healthy.
Section 25(2)(i) of the OHSA mandates that all employers post a copy of the OHSA in English and any other majority language of the workplace.
Where can I find this?
The entire contents of the OHSA can be found and printed by clicking here.
Section 2(3) of the Employment Standards Act, 2000, S. O. 2000, C. 41 (the “ESA“) states that all employers must “post and keep posted in at least one conspicuous place in every workplace of the employer where it is likely to come to the attention of employees in that workplace a copy of the most recent poster published by the Minister under this section”.
The poster in question is entitled What You Should Know About The Ontario Employment Standards Act, 2000 and gives employees a snapshot of their most basic rights as employees including hours of work, rest periods, overtime pay vacation, etc.
Where can I find this?
The What You Should Know About The Ontario Employment Standards Act, 2000 poster can be found in pdf format here.
The OHSA allows for other posters to be mandatory in Ontario workplaces. One of those posters is called Health & Safety at Work: Prevention Starts Here. It sets out workers’ rights and obligations as well as employers’ and supervisors’ rights and obligations when it comes to workplace health and safety.
Where can I find this?
A copy of Health & Safety at Work: Prevention Starts Here can be downloaded in pdf format here.
The Workplace Safety and Insurance Act, 1997 S.O. 1997, Chapter 16, Schedule A (the “WSIA“) is intended to promote health and safety at work, promote the safe and timely return of injured workers back to their jobs and to provide for compensation to injured workers unable to perform their duties.
Under R.R.O. 1990, Regulation 1101, which is a regulation respecting first aid, the Workplace Safety and Insurance Board (the “WSIB“) has mandated that every employer “shall at all times keep posted in other conspicuous places in the place of employment the Board’s poster known as Form 82 respecting the necessity of reporting all accidents and receiving first aid treatment”.
Where can I find this?
Form 82, otherwise known as the “In Case of Injury” poster, can be downloaded here.
Sections 25(2)(j) and (k) of the OHSA mandate that every employer post at a conspicuous location in the workplace a written copy of the occupational health and safety policy which is to be reviewed annually. The employer must also develop and maintain a program to implement the office’s health and safety policy.
Where can I find this?
Normally, the health and safety policy will be located in your office’s employee manual. If you do not yet have a health and safety policy developed, you can find guidance, including a sample policy, by clicking here.
Part III.01 of the OHSA requires that, unless otherwise ordered, workplaces with more than 5 employees must have workplace violence and harassment policies in place and that such policies must be posted in a conspicuous place. The contents of such policies must include things like: measures and procedures to control the risks of physical injury, violence or harassment; measures and procedures for workers to report incidents; how the employer will investigate and deal with complaints; etc.
Where can I find this?
An example of a workplace violence policy is given by the Ministry of Labour and can be found here. An example of a workplace harassment policy is also given by the Ministry of Labour and can be found here. For general information on workplace violence and harassment you can click here.
For further guidance and information on employee postings or anything else contained in this blog, you can contact me (Ljubica Durlovska), David Mayzel or Michael Carabash. We are your legal dental team. Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact me (Michael Carabash) or David Mayzel.
Now, you’ve probably read my previous blogs about non-solicitation:
And, while doing some research, I came across an important Ontario case which I wanted to share.
In Dr. Alain Nourkeyhani Dentistry Professional Corp. v. Pakroo  O.J. No. 2249, the Ontario Superior Court of Justice (Divisional Court) had to determine whether Dr. Jaffar Pakroo dentist should be prevented from practicing dentistry in contravention of a purchase and sale agreement, as well as being prevented from advertising his new practice in the Iranian media. In August 2007, Dr. Pakroo sold his practice to Dr. Alain Nourkeyhani DPC. The agreement of purchase and sale contained various restrictive covenants, including a non-compete and a non-solicitation clause. Specifically, the agreement said that Dr. Pakroo would not practice as a dentist within a 10-mile radius of the then current office; the agreement also said that Dr. Pakroo would not “directly or indirectly, contact, solicit, interfere with or endeavour to entice away from the Purchaser in any manner whatsoever, any patient”. Less than 1 year later, Dr. Pakroo opened an office within the 10-mile radius of his other office. Dr. Alain Nourkeyhani DPC sued.
On a motion (i.e. a mini-trial that is brought before the trial to deal with the issue of whether Dr. Pakroo should be allowed to operate his new practice), the Divisional Court held that it was clear that Dr. Pakroo had violated the purchase and sale agreement and ordered him not to engage in the practice of dentistry at his new office. He was also ordered to “cease and desist from advertising his services as a dentist in the Iranian media in the Greater Toronto area”.
Dr. Pakroo appealed the decision. The Divisional Court sided with the previous judgment and saw no reason to interfere. The motion judge had identified the legal test and applies it to the facts to make a decision. So the Divisional Court dismissed the appeal with respect to the part of Dr. Pakroo not engage in the practice of dentistry at his new office until the trial was decided.
That said, the Divisional Court did not agree with the motion judge’s order concerning preventing Dr. Pakroo from advertising in the Iranian media. Indeed, the Divisional Court held that, based on the jurisprudence of appeals, the motions udge got it wrong and granted an appeal to Dr. Pakroo. Here’s how the Court got there:
18 It is generally recognized that a non-solicitation clause in an agreement does not prevent a person from doing general advertising in the media: Groupe Financier Assbec Ltée v. Dion, (1994), 61 C.P.R. (3d) 289 (Que. C.A.); Hawboldt Industries Ltd. v. Chester Basin Hydraulics & Machine Ltd.  N.S.J. No. 87, 57 N.S.R. (2d) 413 (N.S.S.C.) at paras. 55 and 62; Sanford Evans List Brokerage v. Trauzzi,  O.J. No. 1394, 50 C.C.E.L. (2d) 105 (S.C.J.) at para. 49, and cases referred to therein. In addition, it is generally not considered to be solicitation of customers if advertisements are placed in trade journals or the like, provided that confidential information is not used: Hawboldt Industries Ltd. If advertising of a general nature is carried out, it is irrelevant that information with respect to the defendant’s new location may come to the attention of his former customers and irrelevant that they might therefore seek him out. That does not constitute solicitation. It is only where a defendant makes use of confidential information or targets specific members of the former client base that advertising efforts have traditionally been found to be objectionable.
19 In Dr. P. Andreaou Inc. v. McCaig,  B.C.J. No. 537 the British Columbia Court of Appeal held that a dentist who sold his practice in Surrey and then placed an advertisement in the local Surrey newspaper announcing the new location of his practice (which was outside the Surrey area) did not breach the terms of the sale agreement prohibiting him from soliciting former patients. The wording of the non-solicitation clause in that case is strikingly similar to the one at issue in this case. Further, the fact that the ads were placed by Dr. McCaig in the Surrey newspaper where the former practice was located, rather than in the new community in which he was practicing, is significant. The ads were placed in the community where those patients were located.
20 In my view, the decision of the motion judge on this issue is in conflict with the cases I have cited, and in particular with the British Columbia Court of Appeal decision referred to in the preceding paragraph. This is not simply a matter of exercising discretion in a different way. It appears to me that there is an actual conflict in principle.
21 Alternatively, based on these authorities and on the wording of the agreement in this case, I have reasons to doubt the correctness of the motion judge’s decision in this regard. The plaintiff knew about the advertising Dr. Pakroo had done in the past. It would have been a simple matter to insert a provision with respect to advertising if it was the intention of the parties that there should be a limit on advertising. It also appears that the motion judge took into account that the defendant had breached the geographic restriction in the non-competition clause when issuing the order prohibiting future advertising. In my view, it is debatable that the defendant’s bad conduct in where he chose to relocate his practice can be used to restrain his right to advertise his practice, which otherwise is an untrammelled right. The fact that advertising generally is not restrained, but merely advertising in the Iranian media, does not alter the fact that there is nothing in the agreement prohibiting advertising at all, whether in the Iranian media or elsewhere. Just because a large proportion of Dr. Pakroo’s former patients are Iranian does not mean that placing advertisements in the Iranian media is a “solicitation” of those people. Clearly, Dr. Pakroo sought to reach individuals likely to be particularly interested in his services, and clearly many of his former patients would be likely to see or hear the ads he placed, but so would many other potential clients. It is strongly arguable that more than this is required before a person can be restrained from communicating his place of business to the public.
22 In my opinion, this is an issue that goes beyond the interest of the two parties involved. Toronto has a rich and diverse population. There are many separate cultural communities within the Greater Toronto area and many media sources serving the particular needs of those communities, often in their own language. Many individuals in those communities have a less than perfect grasp of the English language and prefer to deal with professionals, such as doctors, who can communicate with them in their native languages. Prohibiting a professional from advertising in his own cultural community whenever he or she is restrained from soliciting former clients or patients has implications both for those professionals, and for the community they serve.
Moral of the story: if you want to prevent a dentist from soliciting and you want to include prohibitions on advertising, then make sure your agreement says so! Legal battles can hopefully be avoided if the parties enter into clear, complete, and certain agreements. As the Divisional Court said above: “It would have been a simple matter to insert a provision with respect to advertising if it was the intention of the parties that there should be a limit on advertising”.
Finally worth mentioning is that this Ontario case follows and cites Dr. P. Andreaou Inc. v. McCaig, which I discussed in my previous blog.
Here is my article entitled “When Your Associate Leaves…”, which will be published in next month’s edition of Ontario Dentist magazine:
Now, due to space restrictions, I wasn’t able to get into some additional and more recent cases involving associates leaving and the principal suing. So here they are:
In Dangstorp v. Lefebvre  S.J. No. 755, two dentist partners (Dr. Deryl Dangstorp and Dr. Hans Baumann) engaged Dr. Maureen Lefebvre as an associate/employee while negotiating her joining their partnership. No written associate agreement had been drawn up. When negotiations failed, the partners terminated the associateship. Dr. Lefebrve subsequently took steps to set up her own practice in the same building as one of the partners’ practices. The partners sued, alleging that she had used patient lists to contact their patients and solicit them. They also alleged that she had the receptionist contact patients on her behalf to solicit them. They sought to prevent Dr. Lefebvre from contacting any of their patients on the basis that she had breached a fiduciary duty she owed them. The Saskatchewan Court of Queen’s Bench dismissed the claims. The Court accepted the finding in the Bacher v. Obar that, while there was no such fiduciary duty, a senior dentist and an associate had a duty to act reasonably toward one another in the conduct of their affairs. The Court also reiterated that professionals do not have a proprietary right in their patients and that patient information can be removed from the office to facilitate proper treatment of patients.
In Lodwig v. Mather,  A.J. No. 382, Dr. William Mather, an established dentist with his own practice, engaged a recent graduate, Dr. Gordon Lodwig to associate. They had an oral agreement. Dr. Lodwig stayed on for almost two years before Dr. Mather terminated the relationship. Dr. Lodwig immediately proceeded to open up his own clinic and hired a dental assistant who had been employed with Dr. Mather for the past 12 years. When he left, Dr. Lodwig took the names of the patients he had treated while at Dr. Mather’s clinic and advised these patients orally or by letter or newspaper notice of his new location and his preparedness to continue to serve them. Dr. Mather sued on the basis that Dr. Lodwig had breached a fiduciary duty. The Alberta Court of Queen’s Bench rejected this claim. The Court cited Goodman v. Newman, Bacher v. Obar, Kronick v. Lamarche, and Dangstorp v. Lefebrve as examples showing that no fiduciary relationship had been found to exist between an associated dentist and an owner dentist; the Court found no basis for the creation of a fiduciary duty on the part of Dr. Lodwig to Dr. Mather. The Court further found that Dr. Lodwig was entitled to take the patient list and had not improperly solicited those patients he personally treated: “A dentist who practises as an associate or even as an employee of another dentist, has the right to have access to or retain the names of the patients with whom he or she has had an exclusive or primary dentist-patient relationship and to advise those patients of the change of location of his or her practice.” Dr. Lodwig had also obtained proper consent and authorization for the patients who came to see him to obtain a copy of their records from Dr. Mather’s clinic. Finally, Dr. Lodwig had hired an employee who had requested employment with him and who had given proper notice.
David Mayzel is your legal risk manager. He is a trained courtroom lawyer and has spent many years resolving disputes both in and out of court. He knows how to prepare documents and execute transactions in a way that avoids or mitigates legal risks. He can be reached at 416.528.5280. or firstname.lastname@example.org.
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