Restrictive Covenants

What Are They?

Restrictive covenants are contractual terms where one party to the contract agrees to refrain from taking a specific action. In employment law, restrictive covenants typically refer to non-compete and non-solicitation clauses.

Non-Compete Clauses
A non-compete clause is a clause that prevents an employee from competing with their former employer (such as by working for a competitor) after leaving their employment. For example, if you work at a hair salon, you may be competing with your former employer if you take a position at a neighbouring salon. Don’t worry though—there is nothing wrong with this unless your employment contract explicitly prevents you form doing so through an enforceable non-compete clause.

Non-Solicitation Clauses
A non-solicitation clause is a clause that prevents an employee from taking away clients or employees of their former employer after leaving their employment. For example, if you quit your job at the hair salon and upon leaving, you phone a number of the salon’s clients and encourage them to go to your new salon, you are “soliciting” your former employer’s business.

Are These Clauses Enforceable?

The court’s starting assumption is that restrictive covenants are void, unless the employer is able to show otherwise. This is because courts are mindful of the inherent power imbalance between employers and employees and because of public policy reasons.

However, a Court will enforce a “reasonable” restrictive covenant. The Court will consider the following guidelines to determine whether or not the clause is reasonable:

• The clause must be reasonably necessary to protect the “legitimate property interests” of the former employer (i.e. things that belong to the former employer such as confidential information/trade secrets, customers/trade connections and current employees);
• The courts will not enforce a non-compete clause if a non-solicitation clause would have been sufficient to protect the employer’s “legitimate property interests”;
• Any limits on where geographically, how long, and what activities the restrictive covenant applies to must be clear and reasonable. For example, a restrictive covenant that applies only to the College-Bathurst area of Toronto, Ontario, and lasts for six months, is much more likely to be upheld as reasonable than a restrictive covenant that lasts for years and is not limited to a specific geographic area.
  
  

Why You Should Contact Us

There is no hard and fast rule that tells you whether or not a restrictive covenant is enforceable. If you are concerned about a restrictive covenant in your contract, you should contact us for more advice.