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Date:
2016.11.10

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THE EMPLOYERS' EDGE

Proceed With Caution: Enforcing Restrictive Covenants is an uphill battle

Many employers want to prevent employees from pursuing their customers when or if the employee moves to a competitor. The bad news is that formalizing this desire in an enforceable contractual provision is becoming increasingly difficult in Ontario courts. Typically, employers looking to restrict their former employees rely on either a non-compete or a non-solicit clause contained in the employee’s employment contract. A non-solicit clause will prevent the former employee from soliciting the customer but does not prevent the individual from accepting the work if the customer approaches him. A non-compete prevents the former employee from approaching and accepting business from customers of his former employer. However, having the employee sign a contract with a restrictive covenant is only the first step in protecting the employer’s business interest.

The second, and perhaps more difficult step is enforcing a restrictive covenant. Although non-compete and non-solicit clauses are included in a variety of contracts, these clauses are rarely enforceable in court. The Ontario Court of Appeal decision in Donaldson Travel Inc v Murphy 2016 ONCA 649 confirmed that courts will not enforce non-compete clauses as they are viewed as an unreasonable restraint of trade. This decision considered the enforcement of an alleged non-solicit clause which stated:

[The personal respondent] agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by Uniglobe Donaldson Travel, directly, or indirectly.

The Court of Appeal upheld the motion judge’s decision that this was not a non-solicit clause but was instead a non-compete clause as it lacked restrictions on duration, geographic scope and purported to prevent the former employee from accepting any business from the employer’s customers. As a result, the clause was unenforceable. This confirms that employers should be cautious in drafting to avoid their clauses being characterized as non-compete.

Employers will be best served by a restrictive covenant that contains no absolute prohibition on accepting business; is limited to customers the former employee had contact with; is limited in geographic scope; is limited in duration; and, is tied to a specific and reasonable goal of the former employer. This type of non-solicit clause is the most likely to be upheld by the courts. When drafting an employment contract employers should consider what is actually required to protect the interests of their business as opposed to using a broad prohibition. With a limited and reasonable approach, employers are more likely to be able to rely on the contract provision, when and if necessary.

The lawyers at CCPartners have extensive experience in drafting and dealing with employment agreements that will hold up to judicial scrutiny. Click here for a list of our team members who can provide guidance in the drafting and implementation of employment agreements in your workplace. 

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