Restrictive Covenant Lawyers

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.

Restrictive covenants are not always enforceable (read more below).

Dutton Employment Law regularly drafts restrictive covenants included in employment contracts on behalf of employers.

Non-Competition

A non-competition clause (or non-competition agreement) is a restrictive covenant in an employment contract. Not all employees have one, but they should, if they are in a management or a sales role.

A restrictive covenant is a clause in an employment contract that limits what the employee can do during and after employment.

Specifically, a non-competition clause limits the employee from working for a competitor or going into business themselves in a competitive nature against their former employer.

Non-competition clauses are restraints of trade, meaning they restrict an individual’s ability to work following the end of employment. For this reason, courts are reluctant to enforce them unless they are carefully crafted and limited in territory and in time. For example, a valid non-competition clause would describe a valid reason for limiting competition, and then limit the employee from competing in downtown Toronto for just 12 months. An unenforceable non-competition clause, on the other hand, would fail to define a valid reason for its existence and also fail to define a region, and then try and limit the employee from competing for three years.

Also because non-competition clauses are restraints on trade, if an employee is terminated from his or her job, and he or she has a non-competition clause in their employment contract, a judge would likely award them a lengthier notice period . This is because the employee was contractually limited in how quickly they could reasonably find new employment due to the fact they couldn’t apply to competitors.

Non-Solicitation

A non-solicitation clause (or non-solicitation agreement) is a restrictive covenant in an employment contract. Not all employees have one, although most high level management and sales employees should. However, even if an employee does not have one, and that employee is an executive or high level manager, he or she may be bound to an implied non-solicitation duty as a fiduciary.

Specifically, a non-solicitation clause limits the employee from taking or attempting take the customers of the employer. In this regard, most individuals with a sales related position have a non-solicitation clause in their employment contract.

Non-solicitation clauses are restraints of trade, meaning they restrict an individual’s ability to work following the end of employment. However, unlike non-competition clauses, courts are more open to enforcing non-solicitation clauses to protect the valid business concerns of former employers.

Nevertheless, employers should carefully craft non-solicitation clauses to make sure they remain valid if tested by a court. The non-solicitation clause should describe how it necessary in the context of the business and the employee’s duties regarding it. Furthermore, the non-solicitation clause should only apply to customers to which the employee already has a relationship. Finally, the non-solicitation clause should be limited in territory and time. For example, an enforceable non-solicitation clause would describe the nature of the business, how the employee plays a role in the business, the customers the employee is expected to work with, who the employee is prevented from working with in the event the employee leaves, and that the employee is only prevented from soliciting customers in southern Ontario and for only 18 months.

Confidentiality

All employees owe a duty of confidentiality to their employer. It does not matter whether an employee’s employment contract includes a clause protecting confidentiality, all employees have an implied duty, during and after employment, to protect confidential information or trade secrets they acquired during their employment.

However, the law does not prevent ex-employees from using acquired skills or experience in new positions at new employers. Moreover, information that is not strictly “confidential” is not protected by the implied duty to keep confident company information. For example, a restaurant employee may owe a duty to preserve a recipe for his employer’s secret sauce, but a sales employee may not owe a duty to preserve his contacts, or well developed sales pitch that he acquired at his ex-employer, at his next job.

Regardless, it the onus of the employer to prove, based on a complicated legal test, that an employee has breached its confidentiality duties.

Contact an employment lawyer in Toronto if you have any questions regarding the above restrictive covenants.