Interim Interim Employment Injunctions
In a recent decision from the Alberta Court of Queen's Bench, Justice Mah dealt with an unusual scenario:
Last year, Orbis Engineering Field Services was sold, in a share transaction, to Spark Power Corp. Its former principal and CEO, Mr. Kassam, was kept on as an employee until he was dismissed at the end of April, 2019.
In the same time frame, a number of other Orbis employees departed, and some of them set up a competing business, Taifa Engineering Ltd. Among them, Mr. Saleh actually set up the business (including certain preparatory steps while he was still at Orbis, which would not generally be improper); Mr. Mohamed, who was involved in the initial setup of the corporation, but claims that he renounced his shares and directorship shortly after incorporation and well before Taifa began doing business, and has had no connection with the corporation since that time (though he was dismissed by Orbis after Taifa began operating); Mr. Steyn, who resigned his employment to join Taifa after it started doing business; and Mr. Rahemtulla, who went to work for a different competitor in or about January or February of 2019.
Taifa has apparently had some interaction with at least three of Orbis' customers.
Orbis and Spark believe that there is some sort of conspiracy among these departing employees to take Orbis' business with them; given that Spark presumably paid a price for the shares that included a valuation of good will, they are understandably concerned about this.
But it's a case that appears to be largely based on speculation and conjecture. Their only objection to actual conduct by Kassam is that he retained his personal cell phone number, which he had previously used for business purposes. (Notably, he had this number even before Orbis was founded, and while some telephone numbers were transferred as part of the share transaction, this one was not.) Kassam insists that he has nothing to do with Taifa, and that any business-related calls he receives are referred back to Orbis.
Rahemtulla, likewise, denies any involvement with Taifa.
Mohamed and Saleh both reformatted their company electronics before returning them; Orbis argues that this is suspicious, suggesting an attempt to cover their tracks, though the counter-argument appears to be that personal use of the equipment was permissible, and that they reformatted the electronics to protect their personal privacy.
Orbis brought an Interim Interim Injunction Application seeking to do three things: To prevent the former employees from soliciting its customers; to force Kassam to return the phone number; and for the preservation of certain records.
A large host of legal and factual issues are raised here.
For most employees, binding them to non-solicitation obligations requires a written agreement. It does not appear that Saleh, Steyn, or Rahemtulla signed agreements with such clauses - and the only contracts before the court for these individuals were for summer jobs (of a fixed term) prior to starting their permanent employment.
Mohamed and Kassam both rely on the General Billposting Rule. They were both terminated without notice.
Orbis claims that it has after-acquired cause to dismiss Kassam - that his transfer of his cell phone number to his own personal account constituted just cause. While Kassam claims that he had authorization from Orbis to do so, this is a tricky just cause argument to make in any event. (Presumably, Orbis' theory of the case would be that Kassam kept the cell phone number to be able to direct calls to a competitor or new business - like Taifa. If Orbis could establish that this was the purpose of the transfer of the phone number, then that would be a decent 'just cause' argument. However, there doesn't appear to be any evidence supporting that theory, and transferring the phone number for innocent reasons, even if it were improper, would almost certainly not amount to just cause.)
While just cause would (in theory, at least) defeat the General Billposting Rule, it's particularly challenging for an employer seeking an interlocutory injunction: A 'strong prima facie case' (see below), in a just cause case, would require solid evidence of egregious misconduct. At first glance, an employer who dismisses an employee without notice will not be able to rely on the restrictive covenant, and strong evidence will be required to overcome that presumption on an interlocutory application.
(Similarly, while an employee who has resigned in response to a constructive dismissal would generally be able to rely on the General Billposting rule, practically speaking, this will not often lead to relief against an injunction at an interlocutory stage, especially in the closer cases for constructive dismissal. That said, the right case could lead to some really interesting issues: What happens if an employee is found at trial to have been constructively dismissed, but to have failed to mitigate damages by leaving employment [more common than you'd think], yet was constrained from finding new work by an interlocutory injunction to which, in light of General Billposting, the employer was probably not actually entitled?)
This is one of the unusual facets of this case.
Ordinarily, in employment law injunction cases, applicants are required to establish a 'strong prima facie case' for an injunction. (The theory underlying this is a bit contentious. While there are some arguments that it is the harsh impact on the employee, and the public policy implications of restraints of trade, that call for the higher test, it is more easily reconciled with the seminal law of interlocutory relief to suggest that it is because the granting of the injunction would effectively amount to a final determination of the issue: Given the temporal nature of most restrictive covenants, enforcing such a covenant 'pending trial' will typically mean enforcing it for its entire duration.)
In most cases, a strong prima facie case for an injunction enforcing a restrictive covenant requires two things: A strong basis to say that the employee is bound by a restrictive covenant, and a strong basis to say that the employee has breached or is breaching that restrictive covenant.
Orbis, in this case, argued that it is just trying to enforce existing contractual obligations on a quia timet basis, and therefore only requires a "suspicion of wrongdoing".
This would be a significant break with the existing case law, not only because it is misaligned with the case law of restrictive covenant injunctions, but also because it is out of line with quia timet injunctions, which are generally only granted in cases where there is a "high degree of probability that the apprehended harm will in fact occur."
I'm not sure I've ever seen a non-competition or non-solicitation covenant enforced by way of a quia timet injunction. It's almost certainly possible, but if anything it would be a harder test to satisfy than the usual one.
Furthermore, it does not appear to have actually been true that Orbis' position amounted merely to the enforcement of existing contractual obligations: It appears from the decision that the injunction was sought against Taifa itself, a separate legal entity with which Orbis does not appear to have had any contractual relationship. (To be clear, there's nothing improper or unusual about seeking an injunction against a departing employee's new startup or employer, where the employee has breached his obligations. But 'how you get there' is much more complicated, and isn't an extension of contractual obligations of the departing employee.)
Justice Mah concluded that the standard of a "strong prima facie case" applied here, and Orbis had not satisfied it.
Yes, "Interim Interim Injunction" sounds redundant and unnecessarily confusing. It's also a term I seldom see in this area, though it's a concept that's frequently invoked.
In a nutshell, an 'interim injunction' is one where the applicant seeks relief, on an ostensibly temporary basis until the matter can finally be decided at trial. "I don't believe that you should be allowed to bulldoze my house, so I'd like an injunction to stop your bulldozer until we can resolve this dispute at trial." The problem with this is that a full and fair hearing just of an injunction application requires some time - the parties need an opportunity to prepare affidavits, to cross-examine on these affidavits, to obtain transcripts of those examinations, and then to prepare submissions for the actual hearing. If your bulldozer is already headed to my house, then I probably don't have time for that. So I'll want to bring an application even more urgently, for a temporary order that is designed to protect the status quo until the hearing of the interim injunction application.
Hence, 'interim interim injunction'.
I don't like the terminology, because it doesn't really capture what's going on, within the context of Alberta's Rules of Court. Essentially, the Rules provide a procedure for bringing an Application, and it is possible for the court to waive certain requirements, such as notice, in appropriate cases. Then, if the order is granted, a party who did not have proper notice will typically have an opportunity to bring another application to set aside that initial order. (Other injunctions are granted on an expressly temporary basis, with a returnable date to consider whether to extend them. In Alberta, that's not usually the case for this sort of matter.)
By contrast, in Ontario, the applicable rules delineate a specific procedure for urgent applications (er, 'motions') to be brought without notice; they're only good for 10 days, unless extended, and then need to be brought back on for a full hearing. In Ontario, it might make more sense to call these 'interim interim injunctions'. But they usually use the language of an "urgent basis" instead.
What's most unusual about this case is that it's a bit of a halfway between your typical "without notice" application, and your typical 'normal' application, in that the parties have all filed affidavits, but nobody has been cross-examined.
Justice Mah concluded that the evidence before him was not sufficient to be able to find a strong prima facie case for the 'interim interim injunction', but that the application for the interim (x1) injunction could still be heard.
I'm not sure the approach is quite right, for two reasons. Firstly, I don't think the 'interim interim injunction' should have the same test as an interim injunction enforcing a restrictive covenant: An interim injunction that lasts until trial will essentially dispose of the issue altogether, in most cases; an interim interim injunction that just lasts a few weeks, however, may not.
In my view, the proper question for the court will be whether or not the applicant has led a case (on a 'serious issue to be tried' threshold) that is capable of satisfying the strong prima facie case test. If it is, you grant the very temporary relief, and bring it on for a full hearing later to determine whether or not to continue it. If it isn't, then you reject the application outright, and - subject to a possible appeal - that determines the application finally.
Which brings me to my second concern about Justice Mah's approach: I don't believe I have ever seen a scenario where an employer fails to obtain an injunction on an urgent, expedited basis, and goes on to obtain one following a full hearing. Usually, where a full hearing follows an urgent one, the question is whether to 'continue' the injunction. (Furthermore, the continuation can be rejected on procedural grounds: If it turns out that the urgency was exaggerated, or the applicant failed to make full and frank disclosure at first instance, these are bases to refuse to continue an injunction.)
To allow an applicant to bring an urgent application, lose, and then bring another one afterward for the same relief, raises the specter of a "two kicks at the can" problem. (The same issue is not raised relating to the respondents, who often have little or no notice of the first hearing.) Interlocutory injunctions, in and of themselves, are extraordinary remedies. An injunction granted without the benefit of a full and fair application process exploring the issues...is even more extraordinary. Applicants should seek them only in truly exceptional circumstances, and we should reasonably expect the applicants to lead with their best foot forward when pursuing such extraordinary relief.
The approach I suggest, if it were adopted, would have the impact that, on an 'interim interim application', the court would generally presume the truth of the applicant's version of any contested factual issues, unless they were inherently incredible or unreliable on their face, and ask the question, "If I were to accept these contested facts, and in light of all the uncontested facts on the record, could I be convinced that the 'strong prima facie case' test were satisfied?"
In this instance, it would probably have the impact that Orbis' application would still have failed - a case built on "surmise and supposition" shouldn't ever suffice to warrant an interlocutory injunction. But it would also have the effect, barring appeals or exceptional circumstances, of preventing Orbis from seeking a further hearing on the same issue - and that, too, would be appropriate. If they had a case based only on "surmise and supposition" in the first place, then it's hard to see how they could correct that. (Presumably, they hope to secure something favourable on cross-examination, or obtain expedited discovery through undertakings on those cross-examinations. In either event, if they don't actually have a sound basis for the relief they're seeking in the application in the first, this looks more like a fishing expedition, and less like a legitimate use of the application process.)
*****
Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.
This post does not contain legal advice, but only general legal information. It does not create a solicitor-client relationship with any readers. If you have a legal issue or potential issue, please consult a lawyer.
Last year, Orbis Engineering Field Services was sold, in a share transaction, to Spark Power Corp. Its former principal and CEO, Mr. Kassam, was kept on as an employee until he was dismissed at the end of April, 2019.
In the same time frame, a number of other Orbis employees departed, and some of them set up a competing business, Taifa Engineering Ltd. Among them, Mr. Saleh actually set up the business (including certain preparatory steps while he was still at Orbis, which would not generally be improper); Mr. Mohamed, who was involved in the initial setup of the corporation, but claims that he renounced his shares and directorship shortly after incorporation and well before Taifa began doing business, and has had no connection with the corporation since that time (though he was dismissed by Orbis after Taifa began operating); Mr. Steyn, who resigned his employment to join Taifa after it started doing business; and Mr. Rahemtulla, who went to work for a different competitor in or about January or February of 2019.
Taifa has apparently had some interaction with at least three of Orbis' customers.
Orbis and Spark believe that there is some sort of conspiracy among these departing employees to take Orbis' business with them; given that Spark presumably paid a price for the shares that included a valuation of good will, they are understandably concerned about this.
But it's a case that appears to be largely based on speculation and conjecture. Their only objection to actual conduct by Kassam is that he retained his personal cell phone number, which he had previously used for business purposes. (Notably, he had this number even before Orbis was founded, and while some telephone numbers were transferred as part of the share transaction, this one was not.) Kassam insists that he has nothing to do with Taifa, and that any business-related calls he receives are referred back to Orbis.
Rahemtulla, likewise, denies any involvement with Taifa.
Mohamed and Saleh both reformatted their company electronics before returning them; Orbis argues that this is suspicious, suggesting an attempt to cover their tracks, though the counter-argument appears to be that personal use of the equipment was permissible, and that they reformatted the electronics to protect their personal privacy.
Orbis brought an Interim Interim Injunction Application seeking to do three things: To prevent the former employees from soliciting its customers; to force Kassam to return the phone number; and for the preservation of certain records.
A large host of legal and factual issues are raised here.
Are These Employees Bound by Non-Solicitation Obligations?
For most employees, binding them to non-solicitation obligations requires a written agreement. It does not appear that Saleh, Steyn, or Rahemtulla signed agreements with such clauses - and the only contracts before the court for these individuals were for summer jobs (of a fixed term) prior to starting their permanent employment.
Mohamed and Kassam both rely on the General Billposting Rule. They were both terminated without notice.
Orbis claims that it has after-acquired cause to dismiss Kassam - that his transfer of his cell phone number to his own personal account constituted just cause. While Kassam claims that he had authorization from Orbis to do so, this is a tricky just cause argument to make in any event. (Presumably, Orbis' theory of the case would be that Kassam kept the cell phone number to be able to direct calls to a competitor or new business - like Taifa. If Orbis could establish that this was the purpose of the transfer of the phone number, then that would be a decent 'just cause' argument. However, there doesn't appear to be any evidence supporting that theory, and transferring the phone number for innocent reasons, even if it were improper, would almost certainly not amount to just cause.)
While just cause would (in theory, at least) defeat the General Billposting Rule, it's particularly challenging for an employer seeking an interlocutory injunction: A 'strong prima facie case' (see below), in a just cause case, would require solid evidence of egregious misconduct. At first glance, an employer who dismisses an employee without notice will not be able to rely on the restrictive covenant, and strong evidence will be required to overcome that presumption on an interlocutory application.
(Similarly, while an employee who has resigned in response to a constructive dismissal would generally be able to rely on the General Billposting rule, practically speaking, this will not often lead to relief against an injunction at an interlocutory stage, especially in the closer cases for constructive dismissal. That said, the right case could lead to some really interesting issues: What happens if an employee is found at trial to have been constructively dismissed, but to have failed to mitigate damages by leaving employment [more common than you'd think], yet was constrained from finding new work by an interlocutory injunction to which, in light of General Billposting, the employer was probably not actually entitled?)
If Non-Solicitation Obligations Exist, Have They Been Breached? On What Standard Should Breach Be Proven?
This is one of the unusual facets of this case.
Ordinarily, in employment law injunction cases, applicants are required to establish a 'strong prima facie case' for an injunction. (The theory underlying this is a bit contentious. While there are some arguments that it is the harsh impact on the employee, and the public policy implications of restraints of trade, that call for the higher test, it is more easily reconciled with the seminal law of interlocutory relief to suggest that it is because the granting of the injunction would effectively amount to a final determination of the issue: Given the temporal nature of most restrictive covenants, enforcing such a covenant 'pending trial' will typically mean enforcing it for its entire duration.)
In most cases, a strong prima facie case for an injunction enforcing a restrictive covenant requires two things: A strong basis to say that the employee is bound by a restrictive covenant, and a strong basis to say that the employee has breached or is breaching that restrictive covenant.
Orbis, in this case, argued that it is just trying to enforce existing contractual obligations on a quia timet basis, and therefore only requires a "suspicion of wrongdoing".
This would be a significant break with the existing case law, not only because it is misaligned with the case law of restrictive covenant injunctions, but also because it is out of line with quia timet injunctions, which are generally only granted in cases where there is a "high degree of probability that the apprehended harm will in fact occur."
I'm not sure I've ever seen a non-competition or non-solicitation covenant enforced by way of a quia timet injunction. It's almost certainly possible, but if anything it would be a harder test to satisfy than the usual one.
Furthermore, it does not appear to have actually been true that Orbis' position amounted merely to the enforcement of existing contractual obligations: It appears from the decision that the injunction was sought against Taifa itself, a separate legal entity with which Orbis does not appear to have had any contractual relationship. (To be clear, there's nothing improper or unusual about seeking an injunction against a departing employee's new startup or employer, where the employee has breached his obligations. But 'how you get there' is much more complicated, and isn't an extension of contractual obligations of the departing employee.)
Justice Mah concluded that the standard of a "strong prima facie case" applied here, and Orbis had not satisfied it.
Should The Test Differ For Interim Interim Injunctions?
Yes, "Interim Interim Injunction" sounds redundant and unnecessarily confusing. It's also a term I seldom see in this area, though it's a concept that's frequently invoked.
In a nutshell, an 'interim injunction' is one where the applicant seeks relief, on an ostensibly temporary basis until the matter can finally be decided at trial. "I don't believe that you should be allowed to bulldoze my house, so I'd like an injunction to stop your bulldozer until we can resolve this dispute at trial." The problem with this is that a full and fair hearing just of an injunction application requires some time - the parties need an opportunity to prepare affidavits, to cross-examine on these affidavits, to obtain transcripts of those examinations, and then to prepare submissions for the actual hearing. If your bulldozer is already headed to my house, then I probably don't have time for that. So I'll want to bring an application even more urgently, for a temporary order that is designed to protect the status quo until the hearing of the interim injunction application.
Hence, 'interim interim injunction'.
I don't like the terminology, because it doesn't really capture what's going on, within the context of Alberta's Rules of Court. Essentially, the Rules provide a procedure for bringing an Application, and it is possible for the court to waive certain requirements, such as notice, in appropriate cases. Then, if the order is granted, a party who did not have proper notice will typically have an opportunity to bring another application to set aside that initial order. (Other injunctions are granted on an expressly temporary basis, with a returnable date to consider whether to extend them. In Alberta, that's not usually the case for this sort of matter.)
By contrast, in Ontario, the applicable rules delineate a specific procedure for urgent applications (er, 'motions') to be brought without notice; they're only good for 10 days, unless extended, and then need to be brought back on for a full hearing. In Ontario, it might make more sense to call these 'interim interim injunctions'. But they usually use the language of an "urgent basis" instead.
What's most unusual about this case is that it's a bit of a halfway between your typical "without notice" application, and your typical 'normal' application, in that the parties have all filed affidavits, but nobody has been cross-examined.
Justice Mah concluded that the evidence before him was not sufficient to be able to find a strong prima facie case for the 'interim interim injunction', but that the application for the interim (x1) injunction could still be heard.
I'm not sure the approach is quite right, for two reasons. Firstly, I don't think the 'interim interim injunction' should have the same test as an interim injunction enforcing a restrictive covenant: An interim injunction that lasts until trial will essentially dispose of the issue altogether, in most cases; an interim interim injunction that just lasts a few weeks, however, may not.
In my view, the proper question for the court will be whether or not the applicant has led a case (on a 'serious issue to be tried' threshold) that is capable of satisfying the strong prima facie case test. If it is, you grant the very temporary relief, and bring it on for a full hearing later to determine whether or not to continue it. If it isn't, then you reject the application outright, and - subject to a possible appeal - that determines the application finally.
Which brings me to my second concern about Justice Mah's approach: I don't believe I have ever seen a scenario where an employer fails to obtain an injunction on an urgent, expedited basis, and goes on to obtain one following a full hearing. Usually, where a full hearing follows an urgent one, the question is whether to 'continue' the injunction. (Furthermore, the continuation can be rejected on procedural grounds: If it turns out that the urgency was exaggerated, or the applicant failed to make full and frank disclosure at first instance, these are bases to refuse to continue an injunction.)
To allow an applicant to bring an urgent application, lose, and then bring another one afterward for the same relief, raises the specter of a "two kicks at the can" problem. (The same issue is not raised relating to the respondents, who often have little or no notice of the first hearing.) Interlocutory injunctions, in and of themselves, are extraordinary remedies. An injunction granted without the benefit of a full and fair application process exploring the issues...is even more extraordinary. Applicants should seek them only in truly exceptional circumstances, and we should reasonably expect the applicants to lead with their best foot forward when pursuing such extraordinary relief.
The approach I suggest, if it were adopted, would have the impact that, on an 'interim interim application', the court would generally presume the truth of the applicant's version of any contested factual issues, unless they were inherently incredible or unreliable on their face, and ask the question, "If I were to accept these contested facts, and in light of all the uncontested facts on the record, could I be convinced that the 'strong prima facie case' test were satisfied?"
In this instance, it would probably have the impact that Orbis' application would still have failed - a case built on "surmise and supposition" shouldn't ever suffice to warrant an interlocutory injunction. But it would also have the effect, barring appeals or exceptional circumstances, of preventing Orbis from seeking a further hearing on the same issue - and that, too, would be appropriate. If they had a case based only on "surmise and supposition" in the first place, then it's hard to see how they could correct that. (Presumably, they hope to secure something favourable on cross-examination, or obtain expedited discovery through undertakings on those cross-examinations. In either event, if they don't actually have a sound basis for the relief they're seeking in the application in the first, this looks more like a fishing expedition, and less like a legitimate use of the application process.)
*****
Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.
This post does not contain legal advice, but only general legal information. It does not create a solicitor-client relationship with any readers. If you have a legal issue or potential issue, please consult a lawyer.
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