Executive Summary: Key Legal and Evidentiary Issues

• Enforceability of a non-competition and non-solicitation clause in a unanimous shareholders’ agreement, analyzed under employment law rather than a commercial sale-of-business context.
• Reasonableness of the restrictive covenant’s three-year duration and broad geographic scope (all of New Brunswick and eastern Quebec) and its impact on the engineers’ ability to earn a living.
• Characterization of the engineers’ role and status (key employees and shareholders, but not directors or executives) and how that affects the level of scrutiny applied to the restrictive covenant.
• Allegations of intentional interference with contractual relations by a competing engineering firm, including whether any “illegal means” were used to induce the employees’ departure.
• Proof problems around causation and quantum of loss, particularly the absence of evidence linking property and operating losses at the Edmundston office to the defendants’ resignations.
• Competing summary judgment motions testing whether any genuine issue required a trial, including a defence counterclaim for pay in lieu of notice under employment standards legislation.

Background and parties

Le Groupe Roy Consultants Ltée (Roy Consultants) is a New Brunswick engineering consulting firm with offices across the province, including an office in Edmundston, and 603414 NB Inc. is its management company and shareholder vehicle. Crandall Engineering Ltd., a division of Englobe Corp., operates in the same engineering market and competes with Roy Consultants. Louis Ruest, a civil engineer, and Alain Carrier, an electrical engineer, were employed by Roy Consultants, working primarily out of the Edmundston office but serving clients across New Brunswick and into eastern Quebec. Over time they also became minority voting shareholders in 603414 NB Inc., though they never sat on the board of directors or on Roy Consultants’ executive management team.

Employment, shareholding and the restrictive covenant

Ruest joined Roy Consultants as a civil engineer in July 2009 and later became director of the Edmundston office in 2014. Carrier joined as an electrical engineer in October 2009. Both primarily worked from Edmundston but rendered services throughout the company’s service territory. On 1 November 2014, each acquired 78 Class A voting and participating shares in 603414 NB Inc., later increasing their holdings (by March 2019, Ruest held 169 shares and Carrier 234). By becoming shareholders, they adhered to an existing unanimous shareholders’ agreement dated 26 October 2010, and to a separate participation agreement for assignees. That unanimous shareholders’ agreement contained a key restrictive covenant, clause 18, which prohibited any shareholder who disposed of his shares from directly or indirectly going into business or assisting a competing enterprise in the territory served by the company (N.B. and eastern Quebec), and from soliciting its clients or doing any act that would compete with the company, for three years following the disposition of the shares. Subsequent amendments in 2015 adjusted other clauses and added clause 29, but the central non-competition and non-solicitation undertakings remained in issue.

Events leading to departure

By 2017, Roy Consultants’ Edmundston office had expanded to eight employees, and the company chose to acquire and renovate larger premises on Costigan and Emmerson Streets, with a total investment of roughly $452,000 financed in part by a secured bank loan. Although Ruest and Carrier were involved in identifying and supporting the new location, the court found that the decision to purchase and finance the property was taken by the board of directors, without seeking formal shareholder approval and without relying on any special decision-making role for Ruest or Carrier as shareholders. In early 2019, Ruest became dissatisfied with the transition to a new CEO and contacted a former university colleague, Mike Cormier, now co-president of Englobe Corp. Following discussions with Cormier, both Ruest and Carrier received employment offers from Englobe on 21 May 2019. On 22 May 2019, Ruest resigned from Roy Consultants (effective 21 June 2019) and notified 603414 NB Inc. that he wished to sell all his shares; Carrier similarly advised of his intention to resign and later gave written notice effective 21 June 2019. At Roy Consultants’ request, both stopped working as of 31 May 2019, sold their shares in 603414 NB Inc., and began employment with Englobe on 24 June 2019. In later affidavits, they swore they did not solicit Roy Consultants’ employees or clients, nor disclose confidential information; this evidence was not contradicted.

Claims and defences

Roy Consultants and 603414 NB Inc. sued Ruest, Carrier and Crandall, claiming approximately $706,499.94, said to represent investment costs in the Edmundston premises, interest on the mortgage financing, and lost revenues and profits from the Edmundston operation after their departure. The plaintiffs alleged that Ruest and Carrier breached clause 18 of the unanimous shareholders’ agreement by joining a competitor and thereby undermined the expected profitability of the Edmundston office. They further alleged that Crandall committed an economic tort labelled “délit intentionnel d’interférence” (intentional interference with contractual relations) by inducing the two engineers to breach their contractual obligations. The defendants responded that the non-competition clause was unreasonable and therefore unenforceable, both in its three-year duration and in its territorial reach across New Brunswick and eastern Quebec, as well as in the extremely broad scope of restricted activities (“directly or indirectly” competing, “pos[ing] any act” of competition). They also argued that the plaintiffs had failed to prove any causal link between the alleged breach and their claimed financial losses. In addition, Ruest and Carrier counterclaimed for an indemnity in lieu of notice of termination under s. 30(1) of the Employment Standards Act, arguing that being told not to return to work as of 31 May 2019 after having given notice amounted to a dismissal.

Court’s analysis of the non-competition clause

The central legal issue was whether clause 18 of the unanimous shareholders’ agreement should be assessed under the stricter employment-law standard for restrictive covenants, or under the more lenient commercial standard applicable to a sale-of-business context. The court emphasized that Ruest and Carrier had first and foremost been employees, and only later became minority shareholders by joining an existing shareholders’ agreement they had not negotiated. They held no board seats and did not participate in high-level corporate decision-making; their acquisition of shares was closely tied to their employment and to incentives within the firm, not to a sale or acquisition of the business itself. Against this factual background, the judge held that the unanimous shareholders’ agreement, and thus the restrictive covenant, must be interpreted in the context of an employment relationship rather than a commercial sale-of-business deal. That meant the clause was presumptively unenforceable unless the plaintiffs could show it was reasonable in geographic scope, duration and the nature of the restricted activities, and that it clearly and unambiguously protected a legitimate business interest (such as trade secrets, confidential information, or customer connections). Examining the wording, the court found the covenant excessively broad. It barred Ruest and Carrier from directly or indirectly entering into or assisting any competing enterprise in the entire territory served by the company (New Brunswick and eastern Quebec) for three years, and from engaging in “any act” that could be seen as competition, as well as from soliciting any client and from inducing any person to end their business relations with the company. In practical terms, this prevented the two engineers from working as engineers in their field anywhere in that large region for the full three-year period, effectively blocking them from using their professional skills to earn a living. The judge concluded that this went beyond protecting a legitimate business interest and amounted to an undue restraint of trade: the geographic reach was too wide, the time period too long, and the language too sweeping. On that basis, the clause was held unreasonable and thus unenforceable; there was no need to proceed to a separate public-interest analysis.

Findings on alleged intentional interference and damages

On the intentional interference claim, the court applied the economic tort principles that require (1) the use of an illegal means by the defendant directed at a third party, and (2) an intention to cause economic loss to the claimant. The evidence showed instead that Ruest himself first contacted Mike Cormier at Englobe due to his dissatisfaction with Roy Consultants’ new management. There was no evidence that Crandall or Englobe had used any illegal means, nor that they had deliberately set out to harm Roy Consultants or 603414 NB Inc. by inducing a breach of contract. In addition, the plaintiffs’ proof on loss and causation was thin. They relied on the cost of the Edmundston property investment, the interest paid on the mortgage, and fluctuations in gross operational profit between 2015 and 2022, along with the fact that most Edmundston employees eventually left after Ruest and Carrier departed. However, they did not provide a clear causal analysis showing that these financial outcomes were caused by any wrongful conduct by the defendants as opposed to business, market or internal factors. The court accepted the uncontradicted evidence from Ruest and Carrier that they neither solicited employees nor clients and did not misuse confidential information. In the judge’s view, even had the restrictive covenant been enforceable and breached, the plaintiffs had not established a causal link between the alleged breach and the claimed damages; damages would have been refused in any event.

Counterclaim for pay in lieu of notice

Turning to the counterclaim, the court considered whether Ruest and Carrier had in fact been dismissed such that they were entitled to notice or pay in lieu under the Employment Standards Act. Both engineers had voluntarily resigned on 22 May 2019, giving an effective end date of 21 June 2019; Roy Consultants then instructed them not to return to work after 31 May 2019. The judge held that these facts did not support a conclusion that they were terminated; they remained resigning employees whose employment would end on the date they had themselves chosen. As a result, their demand for an indemnity in lieu of notice failed on the facts. The court granted summary judgment to the plaintiffs on the counterclaim, dismissing it.

Disposition and financial consequences

Having found that there was no genuine issue requiring a trial, the court disposed of both sides’ summary judgment motions on the record. The defendants’ motion was granted, the plaintiffs’ amended statement of claim was dismissed in full, and the restrictive covenant in clause 18 was declared unenforceable because it was unreasonable in scope, duration, and territorial reach. The plaintiffs’ motion was granted only to the limited extent of defeating the counterclaim by Ruest and Carrier for pay in lieu of notice, as the court found that they had resigned rather than been dismissed. In terms of financial consequences, the plaintiffs recovered no damages on their $706,499.94 claim, and the defendants recovered nothing on their counterclaim; the only monetary order was an award of $3,000 in costs in favour of the defendants, payable by the plaintiffs, meaning the defendants were the successful party overall with a total monetary award of $3,000 in their favour.