Executive Summary: Key Legal and Evidentiary Issues

• Enforceability of a non-competition covenant in an employment contract between Carbon Engineering ULC and a former Project Engineer who joined a competitor developing Direct Air Capture (DAC) technology

• Whether the applicants established a strong prima facie case that the restrictive covenant is reasonable and enforceable, considering the power imbalance inherent in employer-employee relationships

• Ambiguity in defining what constitutes "direct competition" and prohibited activities under the covenant, rendering it prima facie unenforceable

• Geographical overbreadth of the restriction covering all of North America when the employer operates only in British Columbia and Texas

• Scope of prohibited activities extending beyond employment to include passive investment and use of name "in any manner whatsoever," capturing conduct far removed from legitimate proprietary interests

• Balance between protecting trade secrets and confidential information in emerging DAC technology versus restricting an employee's ability to earn a livelihood in their chosen field

Background and parties

Occidental Petroleum Corporation, OXY USA Inc., and Carbon Engineering ULC (collectively the "Applicants") sought an interim injunction to enforce a non-competition covenant against Tom Boguslawski, their former employee. Mr. Boguslawski was employed by CE as a Project Engineer from April 3, 2019, to June 2025. CE is a climate solutions company primarily focused on developing Direct Air Capture (DAC) technology. On May 27, 2025, Mr. Boguslawski resigned his employment with CE with an effective date of June 30, 2025, advising that he accepted a position with Phlair GmbH, a German company also focused on developing DAC technology.

The non-competition covenant

As part of a Confidentiality/Inventions/Non-Competition/Non-Solicitation Agreement signed by Mr. Boguslawski (the "Confidentiality Agreement"), the Non-Competition Covenant prohibited him from working for any business "which is in direct competition with the Company's business within North America" for twelve months following the termination of his employment for any reason. The restriction applied whether he acted "as principal, agent, shareholder, director, officer, employee, investor, or in any other manner whatsoever" and prohibited him from directly or indirectly advising, managing, carrying on, being engaged in, owning or lending money to, or permitting his name or any part thereof to be used or employed by any person managing, carrying-on or engaged in a business in direct competition with CE's business within North America.

Legal framework and heightened scrutiny

Both parties agreed that the tripartite test established in RJR-MacDonald Inc v Canada (Attorney General) is applicable. The RJR test requires the Applicants to demonstrate: (1) there is a serious issue to be tried; (2) irreparable harm will result if the injunction is not granted; and (3) the balance of convenience favours granting the injunction. However, the first branch of the RJR test has been modified in the employment context. For employment agreements between employers and employees, where the employees' ability to carry on business or earn a livelihood is affected, an applicant must establish a "strong prima facie case" to enforce a restrictive covenant amounting to a restraint of trade. The Supreme Court of Canada has explained that a strong prima facie case requires that a court must be satisfied that "there is a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice." Essentially, the Applicant is required to show that they will "probably prevail at trial" or are "likely to succeed at trial."

The Court emphasized that non-competition clauses in the context of employment contracts attract considerably more scrutiny than non-competition clauses in the context of the sale of a business, between two parties with equal bargaining power, or fiduciaries. The Supreme Court of Canada has held that, on the basis of principle, public policy, and the nature of the relationship, considerably more scrutiny will be applied to a non-competition clause found in an employment contract compared to one found in a sale of a business. The absence of a payment for goodwill to departing employees and the well accepted power imbalance in favour of the employer justifies more rigorous scrutiny of restrictive covenants, such as non-competition agreements, in the context of employment contracts. The Applicants argued that Mr. Boguslawski was a key employee, which would mean he was a fiduciary and less scrutiny should apply. However, the Court found Mr. Boguslawski was clearly not a key employee with fiduciary obligations. His salary level for his engineering position, three levels of reporting above him, and an inability to unilaterally exercise any power and discretion are not in dispute. The Applicants, large companies which are leaders in their respective industries, are not uniquely vulnerable to or at the mercy of a project engineer, even if he had some seniority.

Protection of proprietary interests

The Court was satisfied that the Applicants' confidential information and trade secrets regarding new and emerging DAC technology is a legitimate proprietary interest. This includes confidential information and trade secrets regarding DAC processes generally, their electrochemical DAC project, a future commercial plant development, and the South Texas Direct Air Capture Project. Occidental and Oxy acquired CE in 2023 for this information, it has evident commercial value, and the information clearly falls under the umbrella of either confidential information or trade secrets. However, the Applicants had to prove that this is an exceptional circumstance where, because of the nature of the business or Mr. Boguslawski's employment, a non-solicitation clause would not suffice. The Applicants argued this is one of those exceptional cases, claiming that Mr. Boguslawski's exposure to trade secrets and confidential information was to such an extent that a simple non-solicitation covenant and his confidentiality obligations would not suffice. The Court could not agree. Canadian courts have enforced restrictive covenants when the employee was a director, senior manager, personified the business, was a key employee, or was a fiduciary. Here, Mr. Boguslawski was not a fiduciary or key employee, he did not personify the business (he did not even have any client interactions), nor was he a senior manager or director. The Applicants' position that this case warrants the extraordinary relief of enforcing a non-competition covenant is not tenable with the presence of a confidentiality and non-solicitation clause. This is not one of the exceptional cases described in Elsley.

Geographical overbreadth

The geographical scope of the Non-Compete Clause is "within North America." "North America" is not defined in the Employment Agreement but is presumed to include at least Canada, the United States, and Mexico. The Applicants argued that it is necessary for the Non-Competition Covenant to apply to the entirety of North America because there are only a limited number of locations in North America that have the appropriate geology and sufficient renewable energy to operate DAC facilities, and that when DAC facilities generate CDR credits, the purchasers are located and operate throughout North America. The Court found that considering the parties' relative bargaining positions and the fact that the Applicants only operate their business in British Columbia and Texas, a restriction to all of North America is unreasonable. The Applicants do not operate in Mexico, nor do they purport to have customers there. This is more than is reasonably necessary to protect a legitimate proprietary interest. Moreover, even if the Court accepted that only a limited number of locations in North America have the appropriate geology and sufficient renewable energy, the Court questioned why the covenant was not restricted to those areas. In these circumstances, an Alberta, British Columbia, and Texas restriction, for example, may have been reasonable. The entire continent of North America goes well beyond that; the Applicants only operate in one province and one state. The geographical restriction is unreasonable and unenforceable.

Ambiguity and prohibited activities

The Court identified fatal ambiguities in the covenant. The first issue is whether "a business which is in direct competition with the Company's business within North America" should have been defined in the Employment Agreement. The Applicants argued that the Non-Competition Covenant itself does not need to describe CE's business to determine what businesses are "in direct competition with" CE, as it can be gleaned from an overall assessment of the clause and the agreement in which it was found. The Employment Agreement states that CE is "in the business of direct air capture and fuel synthesis utilizing atmospheric CO2." The Applicants stated that this, in conjunction with the Non-Competition Covenant, would allow a sufficient meaning to be elucidated. One problem with this argument is that CE does not operate in fuel synthesis, nor does it offer commercialized air-to-fuel processes, and Mr. Boguslawski did not work in this area. This, by definition, would go further than reasonably necessary to restrain Mr. Boguslawski, or at least be ambiguous as he could be prohibited from working in areas of business in which CE does not actually operate, or for which he was not involved with during his employment.

In the Court's view, the lack of definition for the term "is in direct competition" leads to additional ambiguity, for example: Does it refer to only companies operating in the same type of DAC technologies, or more broadly any company engaged in carbon capture or climate solutions? Does it apply to companies with any DAC presence in North America, or only those actually able to "directly" compete on the same scale as the Applicants? Does it apply to companies that sell CDR credits to the same customers even if they do not physically operate within North America?

The second issue is that it is not clear what activity is expressly prohibited. According to the Non-Competition Covenant, Mr. Boguslawski is precluded from acting "either individually or in partnership, whether as principal, agent, shareholder, investor, or in any other manner whatsoever" to directly or indirectly "advise, manage, carry-on, be engaged in, own or lend money to" or to "permit [his] name or any part thereof to be used" by a direct competitor. Because the Non-Competition Covenant is so broad and undefined, it is difficult to ascertain what is actually prohibited. The Court raised questions such as: Would passive investment in a competitor's business be prohibited? What about investing in a mutual fund that holds shares of the competitor, would that breach the covenant? Would working for a company tangentially related to CE's business (i.e., a financial intermediary that sells CDR credits which are the principal source of revenue for CE's business) breach the restrictive covenant?

The activities the Non-Competition Covenant attempts to restrict are also too broad. The clause attempts to limit Mr. Boguslawski from being involved "in any manner whatsoever" in any business that is in "direct competition" with CE. Here, what the Applicants have asked for goes well beyond merely restricting employment. The breadth of the clause, especially considering the phrase "or in any manner whatsoever," even tailored as it was to businesses that are in "direct competition," is such that it could (and would) capture conduct that is far removed from the core of CE and the Applicant's business, such as passive investment. This is a hallmark of an overbroad clause. Additionally, persuasive authority from Canadian courts have held that where a restrictive covenant prevents a former employee from being a passive investor in a competing entity it is unreasonable.

Temporal scope and public interest

The Non-Competition Covenant provides the restraint will last for a "period of twelve (12) months." It is not ambiguous and clearly ends at a defined time (twelve months after employment ends). Mr. Boguslawski argued that the time period is unreasonable because it is arbitrary. He argued that the Applicants cannot specify what projects, clients, or information would be at risk during the restriction period and they have not tendered any evidence that his employment could accelerate Phlair's entry into the marketplace. The Court disagreed. In the Court's view, the one-year period is objectively not unreasonable and there was no evidence presented that it is unreasonable. In the context of a new and rapidly developing industry such as DAC, a twelve-month restriction is a reasonable means of protecting the Applicants' interests during a period of significant change and competition.

Regarding public interest, Mr. Boguslawski argued that the Non-Competition Covenant should not be enforced against him due to his position as an entry-level project engineer with no managerial authority, specialized responsibilities, or unique access to confidential information. He submitted that the restrictions sought by the Applicants are overbroad and lack principled justification, particularly considering the public interest considerations in the carbon removal industry, namely combating global warming and decreasing the current shortage of high-quality CDR credits. The Court disagreed. If the Non-Competition Covenant was reasonable and enforceable, Mr. Boguslawski could still work in his chosen vocation as an engineer, project manager, or both (as he did in his role with CE). The DAC industry would not be overly affected by losing one engineer who, by Mr. Boguslawski's own admission, was not an industry-leading expert in DAC technology. There is no overriding public interest that would make the Non-Competition Covenant unenforceable.

Effect of employee acknowledgment

The Applicants argued that because Mr. Boguslawski admitted that he understood the scope of the Non-Competition Covenant, acknowledged that he would be able to find suitable work in a business not engaged in DAC technology, and executed a contract with provisions where he agreed the Non-Competition Covenant was reasonable and enforceable, it is reasonable. The Supreme Court of Canada has been clear that a court is not bound by an employee acknowledging that the impugned restrictive covenant was reasonable, although it is an additional factor that is relevant and useful to the determination of whether a restrictive covenant is reasonable. Additionally, though Mr. Boguslawski admitted he had understood the scope and agreed with it, the context of the employee-employer relationship matters. The Court accepted that he was one of many project engineers, and though he was promoted to Lead Project Engineer, this did not come with a salary increase or any change in responsibility. Though Mr. Boguslawski was not a completely unsophisticated entry-level employee, the power imbalance between him and the Applicants was still one where he likely lacked bargaining power, and there is no evidence he had the opportunity to negotiate the terms of his Employment Agreement. In such circumstances, his acknowledgment of the Non-Competition Covenant's reasonableness cannot, on its own, cure the ambiguity or overbreadth of the restrictive covenant. Courts must remain vigilant to the realities of employment relationships and cannot rely solely on an employee's acquiescence to validate a clause that is otherwise unenforceable.

Ruling and outcome

Justice M.E. Burns found the Non-Competition Covenant is unenforceable due to ambiguity, and that it goes much further than reasonably necessary geographically and in the scope of activities it covers to protect legitimate proprietary interests. Having found the Non-Competition Covenant is unreasonable and unenforceable, the Court did not need to determine whether the restrictive covenant in question has been breached. The Applicants failed to establish a strong prima facie case and therefore did not meet the first branch of the RJR test. It was unnecessary to consider the second and third branches of the RJR test. As the Applicants failed to discharge their onus to prove that it is just and equitable in the circumstances to grant an injunction, the application was dismissed. As Mr. Boguslawski was successful on this application, he is presumptively entitled to costs. Costs, if not agreed to between counsel, may be addressed by written submissions provided to the court by October 31, 2025. Submissions to be limited to 3 pages not including a draft bill of costs, offers exchanged and authorities. The decision was heard on September 12, 2025, and dated at the City of Calgary, Alberta on October 3, 2025.