Two common restrictive covenants are non-competition agreements and non-solicitation agreements
RELEVANT CASE LAW
Employers often want employees to sign these agreements as part of their employment contract. These covenants attempt to impose additional obligations on the employee both during and after employment has ended. If an employer wants to enforce a restrictive covenant which is a restraint of trade, they will need to demonstrate that it is justified and reasonable. Please see the article titled “Restraint of Trade Clauses” for more information and examples of relevant case law. Non-competition agreements aim to prevent employees from working with a competitor of the employer’s for a specific period of time, during and after employment has ended. This can make it very difficult for an employee to find new work, especially if they work in a specialized field and there are limited job opportunities available to them. If challenged, the employer must show that the restriction is reasonable in the circumstances. If the courts are required to rule on the enforceability of a non-competition agreement, they must first determine that the employer has a proprietary interest to protect. Courts will then consider several factors in determining whether a non-competition agreement is reasonable. These factors include the length of the restriction, the geographic scope, whether the covenant is clear, certain and not vague, and the general reasonableness with respect to the public interest.
Non-solicitation agreements aim to prevent departing employees from poaching their former customers, clients, suppliers or coworkers. Without a proper non-solicitation clause or agreement, it would be much easier for employees to poach former clients, suppliers or fellow employees once their employment with a company has been terminated. Just like non-competition agreements, the courts will consider several factors in determining whether a non-solicitation agreement is reasonable. These factors include the length of the restriction, the geographic scope, whether the covenant is clear, certain and not vague, and the general reasonableness with respect to the public interest. This test for restrictive covenants from Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co. in 1894 was addressed by the Supreme Court of Canada in Elsley v. J.G. Collins Insurance Agencies Ltd., (1978), 83 D.L.R. (3d) 1 (S.C.C.) Employers should be aware that a great deal of skill is required in drafting an enforceable post-employment restrictive covenant. Employees should carefully review an employment agreement, non-competition agreement or non-solicitation agreement and seek legal advice before signing such a document. Please note that the above information does not constitute legal advice. It is general information about the law. If you require legal advice and assistance with regards to drafting or understanding a restrictive covenant or an employment agreement, please contact the experts at Ball Professional Corporation.
Canadian Employment Law
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