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Clause that required veterinarian to pay former employer if she set up practice in same area enforceable

Jurisdiction: - British Columbia

In Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97, the majority of the BC Court of Appeal ruled that a non-compete type clause in an employment agreement that required a veterinarian to pay her former employer prescribed amounts if she set up her own practice in the same area within a three year total period, was enforceable.

The headnote / summary of the case is as follows:

An employer appealed an order declaring unenforceable a clause in an employment contract requiring an employee to pay the employer a prescribed amount in the event she was to compete with the employer upon the contract being terminated.  The clause was held to be a restraint of trade.  As such it was not enforceable because it was unreasonable for two reasons: it was ambiguous and the amount to be paid was a penalty. 

Held: appeal allowed.  The clause was not a conventional non-competition clause in that it contained no prohibition against the employee competing, but the required payment compromised the employee's opportunity to compete with the employer rendering the clause a restraint of trade.  While the payment could not be characterized as a penalty, the court divided on whether the clause was ambiguous with the majority concluding it was not, there being only one reasonable interpretation on a fair reading. 

The clause itself read as follows:

11.      NON-COMPETITION

1.         The Associate acknowledges and agrees that she will gain knowledge of and a close working relationship with the CVC's [Creston Veterinary Clinic Ltd.'s] patients and clients which would injure CVC if made available to a competitor or used for competitive purposes.

2.         The Associate covenants and agrees that in consideration of the investment in her training and the transfer of goodwill by CVC, if at the termination of this contract with CVC she sets up a veterinary practice in Creston, BC or within a twenty-five (25) mile radius in British Columbia of CVC's place of business in Creston, BC, she will pay CVC the following amounts:

If her practice is set up within one (1) year termination of this contract - $150,000.00;

If her practice is set up within two (2) years termination of this contract - $120,000.00;

If her practice is set up within three (3) years termination of this contract - $90,000.00.