Non-compete and non-solicitation clauses are referred to as restrictive covenants, which limit the employee’s ability to compete with the former employer and solicit the former employer’s clients and staff.
This typically refers to competition or solicitation after the employment relationship has ended as it is an implied term of the employment relationship that the employee will not compete with the employer while employed on account of the employee’s duty to be faithful and loyal to the employer.
Courts try to balance a business’s ability to protect its legitimate business interest to restrict competition from someone it has invested time, effort and resources into training, with principles of freedom of competition and freedom to commerce, all of which are integral to a capitalist society.
Although quite common in employment contracts, courts in Ontario and Canada are extremely reluctant to enforce these restrictive clauses on account of the inherent inequality in bargaining power between employees and employers.
However, in order to find such clauses unenforceable, in a society where we believe in freedom to contract, courts employ the principle of reasonableness to find such clauses unenforceable:
The limitations prescribed in non-compete/non-solicit clauses must be drafted in a strict and narrow manner, more so in a contract of employment than in a commercial context. Moreover, not only must such clauses be drafted in clear and unambiguous language, but must also:
1. Be limited in the temporal limit they impose (the period of time the employee is restricted from competing against the employer);
2. Be limited in the geographical limitation they impose; and
3. Generally list the prohibited activities that the employee is barred from performing;
Employers should be very careful not to use boilerplate non-compete/non-solicit provisions that are drafted for commercial purposes in an employment agreement.
If the employment relationship is a series of fixed term contracts, the employer should ensure that the non-compete/non-solicit clauses are incorporated into any new contract. These covenants from a previous employment contract will not automatically form part of a subsequent contract without express agreement and consideration.
To ensure such provisions are drafted with precision and with greater likelihood of enforceability, while taking into consideration the context and circumstances of the industry, employers should consult an employment lawyer.
Similarly, employees should consult an employment lawyer to determine how to best navigate forward correctly, taking into consideration the restrictive provision and the likelihood of enforceability before the courts.
Yusuf Buttar is an employment and human rights lawyer.