Restrictive Covenants for Employees
Restrictive covenants are clauses in employment contracts that prohibit an employee from doing certain things.
A non-competition clause prohibits employees from competing with their employer for a set period of time after the employee leaves the employer.
A non-solicitation clause prohibits employees from soliciting or dealing with customers of the employer. Non-solicitation usually also prohibits the employee from soliciting other employees to leave the employer.
Enforceability of non-competition clauses
Non-competition clauses are not always enforceable. Non-competition clauses are restraints on trade, as they restrict an individual’s ability to work. As a result, judges are hesitant to enforce them. They must be thoughtfully crafted to be limited in territory and in time. For instance, a valid non-competition clause would state a valid reason for limiting said competition, limit the competition to downtown Toronto only for just 6-12 months.
In addition, as non-competition clauses are restraints on trade, if an employee is let go, and he or she has a non-competition clause, a court would likely award them a lengthier notice period in a wrongful dismissal lawsuit. This is because the employee was limited by contract in how quickly they could re-employ due to the fact they couldn’t apply to competitors that were ruled out by the termination clause.
Enforceability of non-solicitation clauses
Similarly, non-solicitation clauses are restraints of trade, but courts are more amenable to enforcing them to protect the valid business concerns of former employers.
Nevertheless, as with non-competition clauses, employers must have carefully crafted their non-solicitation clauses to make sure they are not unreasonable. As such, an enforceable non-solicitation clause would describe how it is necessary in the context of the business and the employee’s job, state how it only applies to clients to which the employee already had a relationship, and should also be limited in territory and time (i.e. 12 months and just one city).
Dutton Employment Law is a restrictive covenants law firm
If your employer has offered you a contract with a restrictive covenant, or has sent you a demand letter trying to enforce a restrictive covenant, contact a Toronto restrictive covenant lawyer today.