Non-Compete Lawyers Calgary

What are restrictive covenants?

Restrictive covenants encompass non-competition and non-solicitation clauses often included in an employment agreement. These clauses are typically triggered against an employee when the employment relationship ends. Restrictive covenants act to extend many duties of an employee, including their duty of good faith and loyalty, beyond the term of the employment relationship.

Non-compete clauses prohibit former employees from taking a new position with a competing business. The notion is that an employee may begin working with a competitor and use an advantage gained by working with their previous employer such as trade secrets, client lists, marketing strategies, etc.

Non-solicitation clauses are less restrictive than non-compete clauses. While an employee subject to a non-solicitation clause can generally work for a competitor, they will be prohibited from contacting their former clients once they have started working for a competitor.

Can an employer enforce restrictive covenants?

The enforceability of restrictive covenants can vary across Canada. Generally, the law attempts to balance the public interest in maintaining freedom of trade against reasonable limits on trade to protect private business interests. For that reason, any contract restricting commercial activity, including a non-compete or non-solicitation clause, is difficult to enforce.

To be enforceable, non-compete and non-solicitation clauses must be reasonably necessary for the protection of the employer’s legitimate business interests. Additionally, the restrictions must be clear and unambiguous.

For example, the courts will not enforce a non-competition clause if a non-solicitation clause would adequately protect the employer’s interests. Where a non-solicitation clause provides adequate protection, a non-competition clause will be unenforceable because it is overly restrictive.

Even where a non-competition clause is enforceable, the specific restrictions cannot be overbroad. The restrictions must be limited to geographic scope and time that is reasonable in the circumstances, which can vary by industry and the nature of the business. Restrictions that are too broad with respect to geographic scope, duration in time, or prohibited activities will not be enforceable.

Does the manner of termination impact whether an employer can enforce a restrictive covenant?

The manner of termination of the employment relationship can impact the enforcement of a restrictive covenant. Where an employer unlawfully terminates an employment relationship, for example by dismissing for cause when it did not have cause to dismiss, it is possible that the employer may not be able to enforce its restrictive covenant. It would seem unfair for an employer to insist on continued performance of the duties of the employee to it when it was in breach of its obligations in the termination.

In the case where an employer has validly terminated an employee for just cause, the employee will likely remain bound by any restrictive covenants contained in its employment agreement. In this situation, the employee has acted in a manner that justified termination for cause and therefore, it would follow they should continue to be bound by any restrictive covenants in place.

Where an employee has been constructively dismissed, meaning the employer has unilaterally varied the fundamentals of the employment contract, it is likely in Alberta that the employer can no longer enforce the terms of a restrictive covenant. A wrongful dismissal, including a constructive dismissal, releases an employee from fiduciary obligations it otherwise might have owed.

How does an employer enforce a restrictive covenant?

If a former employee is actively breaching non-compete or non-solicitation, the employer can apply for an injunction prohibiting the employee from engaging in the restricted activity.

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