In certain industries, such as marketing, high-tech and investment companies, employers often include non-competition and non-solicitation clauses in their employment contracts.
Employers often share key confidential information with their employees, such as client databases, system operations and other confidential information and want to ensure if/when the employment relationship ends their business interests are protected.
A non-competition clause in an employment contract essentially restricts the employee from either working for another employer or starting a new business that is similar to the employer.
In Canada, non-competition clauses in an employment relationship are difficult to enforce as they prevent a former employee from earning a livelihood and are contrary to public policy.
A non-solicitation clause in an employment contract prevents an employee from either approaching other employees to encourage them to leave the employer for new job opportunities, or prevents them from contacting the employer’s customers to solicit business for either another employer or through the employee’s new business.
Unlike non-competition clauses, non-solicitation clauses may be enforceable, but they need to be clear and reasonable.
The court will enforce non-solicitation agreements to prevent former employees taking other employees and customers, but only for a defined period of time.
Factors the courts consider when determining whether these clauses are enforceable and reasonable are:
1. What is the geographical area - depending on the type of work, it may be
reasonable to restrict the employee from working in the town, city or province.
2. What period of time is reasonable – it would not be reasonable to prevent an employee from working indefinitely. The shorter the restriction, the more likely it will be reasonable.
3. Scope of the restriction – if the employee is so restricted from working for any other employer in his or her field of work, then it may not be reasonable.
The law distinguishes between non-competition clauses in an employment contract and those in a commercial context, such as in the sale of a business.
There is a presumption that in a commercial context non-competition and non-solicitation clauses are enforceable, particularly where the parties are of equal bargaining power and they both contemplated the restrictions to protect the legitimate business interests of the purchaser.
For help with non-competition and non-solicitation clauses in employment agreements, contact our office and request an appointment.