Wilson v. Northwest Value Partners Inc., 2015 ONSC 4726
This case serves as a reminder to employers to make sure former employees are abiding by their non-solicit or non-compete obligations before agreeing to settle any wrongful dismissal action.
In this case, the plaintiff Mr. Wilson was a senior executive with Northwest Value Partners Inc. (“Northwest”). The plaintiff had signed a non-competition agreement that prevented him from working for a competitor of Northwest for 24 months after the termination of his employment. Following the termination of his employment, he sued Northwest for wrongful dismissal, claiming entitlement to an unpaid bonus.
The parties then attended a court-directed mediation. The evidence with respect to the mediation showed that the parties had agreed to settle the action at the mediation, subject to the parties executing the settlement documents. In accordance with the settlement, Northwest was required to pay $240,000.00 to Mr. Wilson.
However, a few days after the mediation, Northwest learned that Mr. Wilson was working for one of its competitors and was therefore in violation of his non-competition agreement. In light of this news, Northwest refused to carry out the settlement and instead brought an action against Mr. Wilson for damages for breach of the non-competition agreement. Mr. Wilson brought a motion to compel Northwest to make the payments it had agreed to make in accordance with the settlement agreement.
In deciding Mr. Wilson’s motion, the court applied a two-step test. First, the court determined whether both parties actually agreed to settle the action. Second, assuming there was an agreement, the court considered whether the agreement should be enforced. The court found in favor of Mr. Wilson and ordered Northwest to comply with the settlement.
The court found that the evidence showed that both parties clearly intended to settle the action. Specifically, the court referred to the fact that both parties identified the same terms of settlement in their notes, that formal minutes of settlement had been prepared and executed by both parties, and that Mr. Wilson had taken steps to discontinue his action against Northwest, as evidence that the parties intended to settle the action.
Northwest argued that the settlement should not be enforced because:
(1) Mr. Wilson made a material misrepresentation to Northwest by omitting to disclose the fact that he was working for a rival;
(2) Northwest undertook the settlement discussions under the mistaken belief that Mr. Wilson was not employed by one of its competitors (called a “unilateral mistake”); and
(3) enforcing the settlement would interfere with Northwest’s action against Mr. Wilson for breach of the non-competition agreement.
The court rejected all of these arguments. The court found that there was no legal obligation on Mr. Wilson to report where he was working to Northwest. Northwest could not have had a mistaken belief that Mr. Wilson was not working for a competitor because its contractual obligation to pay the bonus to Mr. Wilson was not tied to his compliance with the non-competition agreement. Lastly, there was nothing in the settlement agreement that prohibited Northwest from proceeding with its action against Mr. Wilson for breach of the non-competition agreement.
All of this additional litigation may have been avoided if Northwest had asked Mr. Wilson about his compliance with the non-competition agreement, or made his compliance with the non-competition agreement a precondition for receipt of any settlement funds. As this case shows, it is essential for employers to make these inquiries before agreeing to settle legal disputes with their former key employees.
The foregoing is for informational purposes only, and should in no way be relied upon as legal advice.