In today's ever-changing workplaces, employees come and go.
The economy continues to cause layoffs. Some Canadian employers
utilize non-competition and restrictive covenants to ensure that
their departing employee does not compete against them.
Restrictive covenants are designed to limit the abuse of
confidential information, the solicitation of employees or clients
or the competition against a former employer.
These agreements are considered to be a restraint of trade, and
courts only enforce them with great caution. It is crucial, in our
experience, that these provisions be well drafted, with specific
attention given to the details of the situation. The biggest
mistake that we see relates to a "cut-and-paste" or
boilerplate approach. Typically, such an approach leads the
employer to error, and the provisions have no utility
Key to Enforceability
Amongst other considerations, there are three key factors that
must be considered when utilizing a non-competition or restrictive
covenant in a Canadian workplace.
First, the agreement must be of reasonable duration. A very long
time frame will not be upheld by a Canadian court. It will be
viewed as unreasonable and a restraint in trade. There is no
legally defined time frame, as each particular situation needs to
be examined on its own merits.
A clause that limits competition worldwide will likely be
unenforceable. Indeed, a geographic limitation that is broader than
necessary is likely to be struck down by a court. The geographic
location must be precise, so as to defend the former employer's
legitimate areas of concern. If an individual works as a sales
person in a specific city, then typically the specific city, and
not a broader area, will be considered reasonable.
Scope of Activity
The third factor is the scope of a business. The activity sought
to be restricted must be precise, reasonable and well-defined. A
classic example would be a sales person prohibited from engaging in
any sales. Such a prohibition is far too large. An individual
selling specific industrial equipment in a specific industrial
sector is more likely to be justified than a broad, overreaching
Several other factors must be taken into account when preparing
a restrictive covenant. In Canada, such agreements, if carefully
prepared, stand a much greater chance of judicial enforcement.
In a policy statement released early last month, the Ontario Human Rights Commission clarified its position on the scope of medical documentation that employees need to provide when making disability-related accommodation requests.
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