The Supreme Court of British Columbia dismissed a proposed class action lawsuit against The TDL Group Corp., the franchisor of Tim Hortons restaurants, which alleged that a “no-hire” clause in franchise agreements unlawfully suppressed employees’ wages.
The decision granted summary judgment in favor of TDL, finding no genuine issues for trial.
The plaintiff, S.L., a former Tim Hortons employee, sought to represent all current and former employees of Tim Hortons restaurants in Canada in a class action lawsuit. S.L.’s claim centered on a clause in the franchise agreement that prevented franchisees from hiring employees from other Tim Hortons locations without the written consent of TDL.
He argued that this “no-hire” clause constituted a civil conspiracy to suppress wages and violated competition laws.
The core of the dispute was whether the “no-hire” clause was intended to harm employees or if it served a legitimate business purpose.
In its analysis, the court emphasized the necessity of proving that TDL and its franchisees acted with the predominant purpose of injuring the employees.
“The plaintiff must demonstrate TDL and its franchisees intentionally participated in conduct with a view to the furtherance of the common design and purpose to injure the plaintiff,” it said, referencing the legal standards for predominant purpose conspiracy.
TDL argued that the “no-hire” clause was included in the franchise agreements to protect franchisees’ investments in employee training and to ensure operational stability across its restaurant network. TDL’s vice-president of Franchise Operations, James Gregoire, provided testimony supporting the business rationale for the clause, explaining that it helped maintain a trained workforce, which was essential for the consistent operation of Tim Hortons restaurants.
The plaintiff’s case relied heavily on expert testimony from an economist who argued that such clauses generally reduce labour mobility and suppress wages. However, the court found that the economist’s evidence, largely based on U.S. studies of non-compete clauses, did not directly support the claim that TDL and its franchisees conspired to harm employees.
The court concluded that there was no evidence from any franchisee to support the conspiracy claim and that Gregoire’s testimony about the clause’s business purpose was uncontradicted.
“The plaintiff has not adduced any evidence that the primary goal of the No-hire clause was to injure employees,” the court said. “Instead, the plaintiff relies on (the economist’s) opinions based on academic studies which focus on the effects of clauses potentially akin to the No-hire clause.”
It called those studies “speculative and indirect, at best.”
The ruling dismissed the class action, underscoring the importance of clear and direct evidence of intent to harm in civil conspiracy claims. The court also highlighted that since the predominant purpose conspiracy claim failed, the related claim of unlawful means tort also could not succeed.
Lessons from this ruling
- Review Employment and Franchise Agreements: Employers should carefully review any restrictive clauses in their employment and franchise agreements to ensure they serve legitimate business purposes and comply with relevant laws.
- Document Business Rationale: It’s crucial to document the legitimate business reasons for any contractual clauses that could be perceived as restrictive to employee mobility. Clear evidence supporting the business need can be pivotal in legal disputes.
- Stay Informed on Legal Standards: HR professionals and employers should stay informed about the legal standards for claims such as civil conspiracy and unlawful means tort. Understanding these standards can help in crafting compliant and enforceable agreements.
For more information, see Latifi v The TDL Group Corp., 2024 BCSC 832 (CanLII).
