RESTRAINT OF TRADE

STACEY REGINALD BALL
82 SCOLLARD STREET TORONTO, ON, M5R 1G2

ENFORCEABILITY

It is often assumed that if a provision is included in an employment contract, then that contract seals the fate of how an employee must act in the future. This is not at all true. Employment contracts may be unenforceable completely or in part, and one common dispute is the enforceability of various restrictive covenants. If an employer wants to enforce a restrictive covenant, the onus is on them to show the reasonableness of its terms. Examples of restrictive covenants are non-competition clauses or non-solicitation clauses (Please see articles on Non-Competition Clauses and Non-Solicitation Clauses). Both Canadian and Ontarianemployment law heavily regulate post-employment competition. Accordingly, these types of clauses are often unenforceable.

​Many factors contribute to the degree of enforceability. Employers should be aware that a great deal of skill is required to draft an enforceable post-employment restraint of trade clause. Both employers and employees should be aware that even if these types of clauses were agreed upon, they should not automatically be considered enforceable. For a post-employment contractual restraint of trade to be enforced, the courts have required it to be reasonable with respect to the temporal length, the geographic area covered, the nature of the prohibited activities and the overall fairness of the clause.

The Supreme Court of Canada has also confirmed that the court will not rewrite an ambiguous or vague restraint of trade. See Sharon v KRB Insurance Brokers (Western) Inc., [2009] S.C.J. No.6. In the employment context, the courts are now sensitive to the generally accepted imbalance in power between employee and employer. The rigorous scrutiny of restrictive covenants is justified in light of this power imbalance, as opposed to those contracts which exist for the sale of a business. Workers should also be aware that courts will now classify restraint of trade provisions as illegal not only if they attempt to do so directly through express terms, but also if they attempt to do so through indirect means.

​See Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97. Please see the articles on “Non-Solicitation Agreements and Non-Competition Agreements” for more details on these specific restrictive covenants. Relevant case law that deals with restraint of trade clauses includes Terra Engineering Ltd. v. Stewart (1994), 56 C.P.R. (3rd) 77 (B.C.S.C.) and Lyons v. Multari, (2000), 50 O.R. (3d) 34 (C.A.). 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 in an employment matter, please contact the experts at Ball Professional Corporation.

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