The Ontario Court of Appeal has made some interesting findings
that should be considered when looking at your non-competition and
The case is Martin v. ConCreate. We commented on
the original decision (
here) and noted that it had a useful and comprehensive review
of the law on restricting post-employment activities. The Court of
Appeal agreed it was a careful survey of the law, but it disagreed
in a couple of important ways about how the law was applied in Mr.
The Non-Competition Covenant
The first problem was that the time period for the covenants
ended 24 months after the sale of the former employee's
interest in the business. That seems clear enough except for the
fact that a sale was not possible without certain consents that
might be required, from lenders for example. The court noted that
it was not clear if and from whom such consents would be required.
Also, the lenders would have no contractual obligation to the
former employee to provide a consent, and might well have an
incentive to withhold consent.
The court ruled that the covenant was for an indeterminate
period with no fixed, outside limit. It was therefore
The Non-Solicitation Covenant
The court also commented unfavourably on the non-solicitation
covenant. The problem was that it purported to cover persons and
activities that the former employer would not necessarily know
about. It is unreasonable to impose a covenant not to do certain
things when the former employee may not know if a supplier, for
example, was a supplier to the former employer, or if a certain
type of business would compete with current or planned activities
of the former employer.
This is a common problem with many non-solicitation covenants we
see. A former employee has to be able know what he or she is
restricted from doing.
The Limited Partnership Twist
Another particular twist was the fact that the former
employee's ownership interest was in a limited partnership. A
partner in a limited partnership is not allowed to take part in the
management and direction of the business. The court stated that the
reasonability analysis for a limited partnership is different from
what applies to shareholdings in a corporation.
Look at the restrictive covenants you are using and read them
carefully. They always have to be reasonable in length,
geographic scope and scope of activities (and just because this
case accepted 24 months in the context of a sale of a business does
not mean such a lengthy period is always acceptable). The
significant lesson from this case is that reasonableness requires
the covenants to have fixed time limits and that they can be
understood and followed.
is it clear how long the covenant lasts and what it
would a former employee always know what type of activity is
prohibited or what persons may not be solicited?
If a restrictive covenant is unreasonable in any way, it is
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
A former teacher at Bodwell High School has learned a valuable lesson from the B.C. Human Rights Tribunal— it is not discriminatory for an employer to offer child-related benefits to only employees with children.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
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