In Quebec the same words in the same clause are governed by different rules depending on what they were bought with. Article 2095 makes an employment covenant unavailable to an employer that terminated without a serious reason — and the buyer had just done exactly that.
At a glance
The buyer acquired all the shares of a specialised industrial cleaning contractor operating across Quebec and into eastern Ontario. The vendor had built it, held all of it, and was the person the refinery and pulp-mill clients called.
Two documents were signed at closing. The share purchase agreement contained a restrictive covenant: five years from the closing date, the province of Quebec and the counties of eastern Ontario in which the business operated, limited to industrial cleaning services of the kinds the business supplied. Separately, an employment contract appointed him vice-president operations, with its own, narrower covenant running twelve months from the end of employment.
Fifty months after closing — four years and two months — the buyer restructured, collapsed the vice-president operations role into a national director position and terminated him. It did not allege cause. Under CCQ art. 2094 a party may, “for a serious reason”, unilaterally resiliate a contract of employment without prior notice; the buyer had no serious reason and did not claim one, so it paid an indemnity and moved on.
His answer to the buyer's injunction application was one article of the Civil Code: art. 2095. “An employer may not avail himself of a stipulation of non-competition if he has resiliated the contract without a serious reason or if he has himself given the employee such a reason for resiliating the contract”.
Read that carefully, because it does not do what a common-law reasonableness analysis does. It does not narrow an overbroad covenant, sever an offending clause or reduce five years to two. It removes the covenant from the employer's hands entirely. If art. 2095 applies, there is nothing left to argue about scope.
And the buyer had walked straight into its trigger. It resiliated without a serious reason as part of an ordinary restructuring — a decision it made for entirely unrelated commercial reasons, eight months before it needed the covenant.
So the case turned on a question nobody had asked at closing: which contract does this covenant belong to?
Fourteen accounts were within the covenant's scope, carrying $3,100,000 of annual revenue against the acquired business's $21,400,000 — 14.5 per cent, concentrated in the two industries where the vendor personally held the relationships.
Two accounts moved in the six weeks between his resignation and the injunction, carrying $440,000 of annual revenue. The injunction application cost $73,000 and was contested on the characterisation point alone.
Payette v. Guay inc., 2013 SCC 45, [2013] 3 S.C.R. 95 is the case that frames the question, and it frames it as a characterisation question rather than a drafting one. The Supreme Court held that the rules applicable to restrictive covenants differ depending on whether the covenant is linked to a contract for the sale of a business or to a contract of employment, and that parties negotiating a sale have greater freedom of contract than parties negotiating an employment contract — in the civil law of Quebec and at common law alike. The characterisation is determined by the nature of the principal obligations under the master agreement and by why and for what purpose the accessory covenant was assumed.
That is a paraphrase and is deliberately not a quotation. The judgment is served from this environment only through a client-side reader, so no text from it is quoted anywhere in this file.
The unit question, then, is not which document the clause is printed in. It is which obligation the covenant is accessory to. A covenant written into an employment agreement but plainly bought with the purchase price can still be a sale covenant; a covenant written into a share purchase agreement but functioning as a condition of continued employment can be an employment covenant. The document is evidence, not the answer.
On these facts the evidence ran one way. The covenant's clock ran from the closing date, not from the end of employment. Its geography tracked the territory of the business sold, not the vendor's job. Its consideration was the purchase price, and the employment contract contained its own separate covenant, which the buyer did not rely on and which would have been governed by art. 2095. The covenant was accessory to the sale, so art. 2095 — a rule about contracts of employment — did not reach it.
The fork the buyer nearly lost on is the one the vendor pressed: the longer and more employment-like the post-closing relationship, the more arguable it becomes that the covenant belongs to the employment contract. Fifty months of full-time employment was his best material. It did not carry, because the covenant's own terms were sale-shaped from the first line.
The injunction issued on the sale covenant for the remaining ten months. The employment covenant was never argued, because arguing it would have handed the vendor art. 2095.
The buyer changed one line in its Quebec template afterwards, and it is a line worth copying. Sale covenants now state, on their face, that they are granted as part of the consideration for the shares, that they run from the closing date, and that they are not conditional on and do not depend upon the vendor's continued employment. None of that is decisive on its own — characterisation looks at substance — but each of them is substance, not label.
For the reverse case, where the covenant genuinely was an employment covenant and failed on the face of art. 2089, see a covenant silent on the type of employment.
Had the covenant been drafted into the employment agreement instead — with its consideration expressed as continued employment and its clock running from the end of employment, which is how most employment templates write it — the buyer's own restructuring decision would have destroyed it. Article 2095 does not require bad faith, a strategic termination or any connection between the dismissal and the competition. A resiliation without a serious reason is enough, and a routine role consolidation is a resiliation without a serious reason.
The tell is the clock. A covenant that runs from the closing date is a sale covenant. A covenant that runs from the end of employment is an employment covenant. When a Quebec deal file contains both, the second one is the one the vendor will point at.
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