Beware the ambiguous restrictive covenant!

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[author: Catherine Coulter]

In the case of Veolia ES Industrial Services Inc. v. Brule, the Ontario Court of Appeal recently confirmed that the severance of ambiguous terms in a non-competition or non-solicitation restrictive covenant will only be permitted on rare occasions. In the 2009 Supreme Court of Canada decision in KRG Insurance Brokers (Western) Inc. v. Shafron, the court stated that severance of ambiguous restrictive covenants takes two forms: (i) notional – the reading down of a contract term to make it legal and enforceable; and (ii) blue pencil – the removal of part of a contract term. The court confirmed that blue pencil severance of an ambiguous restrictive covenant will only be permitted where the portion being removed is trivial.

In the Veolia v. Brule decision, the court determined that the parties to the non-competition covenant would not have agreed to remove the words which were ambiguous, without varying other terms of the covenant. Justice Hoy, writing for the court, found that the ambiguous words were not trivial, as they went to the duration of the restriction (one of the most important parts of a non-competition covenant). As a result, the court overturned the trial judge’s finding that the non-competition covenant had been breached.

This case is the latest in a long line of Canadian decisions which make clear that restrictive covenants are not viewed favourably by our courts and will generally be overturned other than in special cases. If restrictive covenants are critical for your organization, seek legal advice and try to ensure that there are no ambiguities in the agreement, as the courts will not go out of their way to help cure those ambiguities.