The recent Alberta decision of ADM Measurements Ltd. v. Bullet Electric Ltd. provides a useful summary of post-employment obligations and the extent to which ex-employees may compete with their former employer.
ADM is an instrumentation business for oilfield companies. As the business grew, ADM decided to hire Gregory Young, through Young’s company Bullet Electric Ltd., to help manage the business. The relationship between the parties eventually broke down and Young and a business partner formed a new competing company, Bullet Energy (Canada) Inc. Bullet Energy became more and more successful and ADM faltered. ADM commenced an action against Bullet Electric and Young for breach of fiduciary duty. ADM further made a claim against Bullet Energy, Young and his business partner for unjust enrichment and unfairly interfering with ADM’s contractual relations with its customers and employees.
In reaching its decision to dismiss ADM’s claim, the Court considered a number of issues, as discussed below.
Existence of an Employment Relationship
The first issue considered was whether Young was an employee of ADM. Young clearly provided services to ADM through Bullet Electric; however, the Court found that Young was an employee of ADM, rather than an independent contractor, based on the following factors:
• Young’s management activities were clearly subject to ADM’s direct control;
• Young assigned work to and supervised other ADM employees and independent contractors, suggesting integration into the business of ADM;
• Young used ADM’s office infrastructure and supplies rather than supply his own;
• Young contracted for his services alone, no subcontractors were used to provide services to ADM; and
• Young received a fixed monthly salary from ADM without any associated risk of expenses.
Once it was determined that Young was an employee of ADM, the Court considered whether Young owed any post-employment obligations to ADM and if so, whether he breached those obligations. The Court found no evidence of any contract prohibiting Young from opening a competing business. The Court also held that Young was not a fiduciary of ADM: Young did not possess the necessary control over ADM typical of a key employee. Finally, the Court held that ADM had constructively dismissed Young, and that even if Young had contractual non-competition obligations or fiduciary obligations, the wrongful termination ended those obligations.
Interference with Contractual Relations & Causation
The Court went on to consider whether any damages could be awarded against Young, Warnock and Bullet Energy for interference with contractual relations, as a result of former customers and employees of ADM moving to Bullet Energy. Firstly, the Court determined that there was no interference with contractual relationships between ADM and its customers given the precarious nature of the customer relationships in the industry. Contracts were made for individual “piece-work” tasks and any long-term interaction was informal and not contractual. Young and his business partner, through Bullet Energy, were simply willing to compete with ADM and did so in an aggressive manner. The Court further accepted that while a new employer may be liable for damages caused by interfering with an employee/employer relationship of a competitor, such liability would not be found without extensive evidence. More must be proven than employee migration from the old company to the new one; instead, the old company must prove that the employee migration was due to inappropriate solicitation of former employees. ADM failed to supply any evidence to support such an argument.
The Court further dismissed ADM’s argument that ADM’s shrinking revenues were directly caused by Bullet Energy taking its business. Rather, the Court found that while ADM’s revenue was clearly shrinking, Bullet Energy’s success was most likely caused by Bullet Energy “out hustling” ADM rather than “stealing work” from ADM.
In the result, Young and his new company, Bullet Energy, were entitled to freely compete with ADM.
ADM Measurements Ltd. v. Bullet Electric Ltd.: http://canlii.ca/t/fqhgj