What are non-compete clauses?
Non-compete clauses fall under the broader term “Restrictive Covenants”, which 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 and require the employee to continue the 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. This is to avoid the risk 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 and can also vary depending on the industry and nature of the business.
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
Clear and unambiguous
Limited to a reasonable geographic scope and duration of time
Reasonable in the activities it prohibits the employee from engaging in
For example, the courts will not enforce a non-compete clause if a non-solicitation clause would adequately protect the employer’s interests. Where a non-solicitation clause provides adequate protection, a non-compete clause will be unenforceable because it is overly restrictive.
Can the termination impact whether an employer can enforce a non-compete clause?
Yes, if an employer unlawfully terminates an employment relationship, it’s possible the employer may not be able to enforce a non-compete or non-solicitation clause. This includes a case where an employee has been constructively dismissed, meaning the employer has unilaterally changed the fundamentals of the employment contract.
In the case where an employer has validly terminated an employee for just cause, it’s more likely the employee will have to follow any restrictive covenants contained in the employment agreement.
How does an employer enforce a non-compete clause?
If an employer discovers a former employee is actively breaching non-compete or non-solicitation, they can apply for an injunction to prohibit the employee from engaging in the restricted activity.
At Cashion Legal, we work with our clients to review restrictive clauses in employment agreements before they sign, or to review the enforceability of these clauses after termination.
Frequently asked questions about non-competes
Many non-compete agreements are not enforceable because they are overly broad or overly restrictive. However, every situation is unique so we recommend discussing your situation with an employment lawyer.
Having your employment contract reviewed is a prudent and responsible step to protect your rights and interests as an employee. An employment contract review will allow you to:
- Gain a clear understanding of your rights, obligations, and entitlements as an employee. This includes information about your salary, benefits, working hours, leave policies, termination procedures, and more.
- Identifying unfair or unfavorable terms, including restrictive covenants, non-compete clauses, confidentiality agreements, or ambiguous terms.
- Ensure that the terms and conditions stated therein align with the applicable employment laws in your jurisdiction.
- Negotiating better terms, including improved job security, enhanced benefits, increased compensation, or other favorable changes.
- Ensuring the agreement is clear, unambiguous, and accurately reflects the agreed-upon terms to prevent potential disputes.
Your employment contract should be reviewed before it is signed, otherwise you may not be able to request any future changes to your contract.
Employment contract reviews can generally be completed within a week, subject to our availability.
The cost of an employment contract review depends on the employment contract itself. We can provide a quote for your employment contract review after you have provided our office with a copy of your employment contract.