Non-competes are clauses in employment contracts that prevent employees from working for competitors or starting similar businesses after leaving their job. They aim to protect an employer’s interests, such as trade secrets and client relationships. But are non-competes enforceable in Canada?
The enforceability of non-compete clauses is limited. The legal system favours an employee’s right to work, so these agreements are often difficult to enforce unless they are reasonable in scope and duration.
For both employers and employees, understanding the enforceability of non-compete agreements is essential. Employers need to know when their non-competes can stand up in court, and employees must be aware of their rights to ensure they are not unfairly restricted in their future employment opportunities.
Understanding Non-Compete Agreements in Canada:
What is a Non-Compete Agreement?
A non-compete agreement is a clause in an employment contract that limits what an employee can do after leaving the employer, such as:
- Restricting an employee from working for competitors.
- Restricting an employee from starting a similar business.
- Setting limitations on time, geography, and the type of work the former employee can pursue.
These agreements are commonly used to protect:
- Trade secrets and confidential information.
- Client relationships that are crucial to the company’s success.
- Business operations that would be harmed by competition from a former employee.
The intent behind these clauses is to safeguard the employer’s competitive advantage by preventing employees from using insider knowledge for the benefit of rival businesses.
How Does Canadian Law View Non-Competes?
In Canada, non-compete agreements are generally viewed with caution by the courts. The legal system favours the right of employees to earn a living, so non-competes are enforceable only if they are deemed reasonable in terms of scope, duration, and geography.
Courts prefer less restrictive alternatives like non-solicitation agreements, which limit an employee’s ability to target former clients or employees without completely restricting future employment opportunities.
In cases where a non-compete is deemed overly broad, Canadian courts may:
- Modify the agreement to make it more reasonable.
- Strike it down entirely if it severely limits an individual’s ability to work.
Criteria for Non-Competes Enforceability in Canada
Key Factors Considered by Courts
When determining whether a non-compete agreement is enforceable, Canadian courts consider several key factors to ensure fairness and reasonableness:
Time and Geography
Non-compete clauses must be reasonable in duration and geographic scope. For example, a two-year restriction covering an entire country may be deemed excessive, while a six-month restriction limited to a specific region might be more acceptable.
Protectable Interest
Employers must prove they have a legitimate business interest that justifies the restriction. This may include protecting trade secrets, confidential information, client relationships, or specialized training provided to the employee.
Public Interest
Courts tend to favour agreements that don’t overly restrict an individual’s right to work. A non-compete that limits someone’s ability to find new employment in their field may be considered contrary to public policy, particularly if it impedes a person’s ability to earn a living.
Common Scenarios Where Non-Competes Are Enforceable
While Canadian courts are generally hesitant to enforce non-compete agreements, there are situations where they may be upheld, such as:
High-Level Executives
Non-compete agreements may be more likely to be enforced for executives or employees privy to sensitive company information, as they hold positions of trust and have access to valuable trade secrets.
Specialized Roles
Employees with highly specialized knowledge or training that could directly benefit a competitor may be subject to enforceable non-competes, particularly if the employer can show the need to protect this unique expertise.
Sale of a Business
In cases where a business is sold, the buyer may require non-compete clauses to protect the value of the business and prevent the seller from starting a competing business immediately.
Challenging a Non-Compete Agreement
Grounds for Challenge
Employees who feel a non-compete agreement is unfair or overly restrictive can challenge its enforceability on several grounds:
Unreasonable Restrictions
If the non-compete clause imposes excessive limitations on the duration, geographic area, or scope of work, it may be deemed unenforceable. For example, a clause that prevents an employee from working in any related industry for ten years or across an entire country may be seen as unreasonable.
Lack of Value Offered to the Employee
If nothing of value is offered to the employee at the time of signing, the non-compete may not be enforceable. Examples of value or consideration include an offer of employment, a promotion, a raise, or access to special training.
Contravention of Provincial Employment Standards
If the non-compete agreement goes against provincial labour laws, which differ across Canada, it may be struck down. For example, Ontario banned most non-competes in 2021 so non-compete agreements are much less likely to be upheld in Ontario courts.
Negative Impact on Public Interest
Agreements that negatively affect the public interest, such as limiting access to skilled, in-demand workers in certain industries, may also be challenged.
Steps to Challenge
If you believe a non-compete agreement is unenforceable, here are the key steps to take:
- Gather Evidence
- Collect documents, emails, and other communications that may help demonstrate the agreement is unreasonable or that you were not adequately compensated for signing it.
- This might include your job description, any training provided, and evidence that shows how the agreement limits your ability to work.
- Consult Legal Counsel
- Seeking advice from a lawyer who specializes in employment law is essential.
- A lawyer can help assess whether the non-compete clause is enforceable and guide you through the process of challenging it in court, if necessary. They will also assist in negotiating with your employer to reach a resolution.
Alternatives to Non-Competes
Non-Solicitation Clauses
How Non-Solicitation Clauses Differ from Non-Competes
Non-solicitation clauses restrict an employee from soliciting or attempting to engage the company’s clients, customers, or other employees for a certain period of time after leaving the company.
Unlike non-competes, they do not prevent employees from working in a similar industry or for a competitor, making them less restrictive on future employment.
Legal Advantages for Employers
Non-solicitation clauses are generally easier to enforce than non-compete agreements, as they are seen as less restrictive on an employee’s right to work.
They help employers protect client relationships and prevent employees from using confidential business information to poach clients or colleagues without fully limiting the employee’s ability to earn a living.
Confidentiality Agreements
How Confidentiality Agreements Differ from Non-Competes
Confidentiality agreements require employees to keep sensitive business information—such as trade secrets, client lists, and proprietary processes—private even after leaving the company.
They don’t restrict employees from working for a competitor or continuing to work in their field, however.
Legal Advantages for Employers
Confidentiality agreements also tend to be easier to enforce. These agreements allow employers to protect their intellectual property and business operations without imposing restrictive limits on where and how employees can work in the future.
Why Choose Cashion Legal?
Understanding non-competes and their alternatives can be complex, but with the right legal support, you can ensure your rights as an employee are protected and that any non-compete you sign is fair and enforceable.
At Cashion Legal, our team offers specialized expertise in employment law, focusing on non-compete clauses and alternative protections. We provide tailored solutions to meet your unique needs, ensuring your interests are effectively represented.
Whether you’re an employee with concerns about your non-compete or an employer looking to ensure your agreements are enforceable, our expert employment lawyers are here to help.
Book a consultation today for tailored legal advice.
FAQs: Non-Competes Enforceability
Are non-competes enforceable in Canada?
Yes, non-compete agreements are enforceable in Canada, but they are subject to strict enforceability criteria. Courts will only uphold them if they are reasonable in scope, duration, and geography, and if they protect a legitimate business interest.
Can I work for a competitor if I’ve signed a non-compete?
It depends. If the non-compete clause is deemed unreasonable by the court, it may not be enforceable. However, if it is reasonable, it may limit your ability to work for a competitor within the specified restrictions.
How can an employer protect their business without a non-compete?
Employers can use non-solicitation clauses to prevent employees from poaching clients or employees and confidentiality agreements to protect sensitive information, both of which are generally easier to enforce than non-competes.