Ibolya Entered into an Employment Contract with a Toronto Advertising

question 115

Multiple Choice

Ibolya entered into an employment contract with a Toronto advertising firm, VertaNet Ltd. The agreement included a non-competition clause that prevented her from participating in the advertising field in Toronto for five years after termination of her employment. In the event of a breach, the contract provided that Ibolya would have to pay VertaNet the sum of $500,000 as liquidated damages. Ibolya worked for VertaNet for a period of time, then took another job in Vancouver where she worked for four and half years. Six months before the expiry of the five-year period in her VertaNet contract, Ibolya returned to Toronto to take a part-time position at a small advertising firm. Although VertaNet did not suffer any damage, VertaNet sued Ibolya claiming $500,000. What is the likely outcome?

• A) The non-competition clause is likely a penalty and therefore unenforceable.
• B) Although the amount claimed is unconscionable, the clause will be enforced as it is writing.
• C) Non-competition clauses generally are void as not being in the public interest.
• D) Liquidated damages clauses are illegal and therefore void.
• E) Unless the $500,000 had been prepaid, Ibolya has no good defence.

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Definitions:

Variable Cost

Costs that vary directly with the level of production or sales, such as materials and labor.

Net Book Value

The difference between the cost of a fixed asset and its accumulated depreciation.

Differential Effect

The financial impact of choosing one option over another in decision-making scenarios, focusing on differences in costs and benefits.

Variable Selling Cost

Selling costs that vary directly with the volume of sales, such as commissions or shipping fees.