Canada: Corporate Securities Law March 1, 2013 Court Of Appeal Decision Provides Guidance On Restrictive Covenants

Last Updated: March 14 2013
Article by Goodmans LLP

The recent Ontario Court of Appeal decision in Martin v. ConCreate USL Limited Partnership provides important guidance on the enforceability (and the limits of enforceability) of non-competition agreements and other restrictive covenants.

The Martin case confirmed the appropriateness and efficacy of restrictive covenants negotiated in the context of a sale of a business, but highlights the fact that unless such covenants have clear and reasonable limits they will be unenforceable.


Martin was employed by ConCreate USL Ltd. for 20 years, eventually acquiring a minority interest in it and a related business, Steel Design & Fabricators (SDF) Ltd. In connection with the sale of the businesses, Martin retained a minority interest in both companies and entered into agreements containing non-competition and non-solicitation covenants.

Among other things, the terms of the restrictive covenants:

  • had a Canada-wide geographic scope,
  • prohibited Martin from engaging in a range of activities that included activities in which ConCreate and SDF did not engage at the time of the sale transaction, and
  • were effective for a period of 24 months from the time that Martin disposed of his partnership interests

Under the agreements Martin could not sell his partnership interests without first obtaining the consent of each of the general partner and any respective lenders and bonding companies engaged by the companies from time to time.

Martin's employment was terminated six months after the sale transaction. Eight days later, he established a company that competed with SDF and employed former ConCreate employees. ConCreate and SDF argued successfully at trial that Martin had breached his agreements; Martin appealed to the Court of Appeal.

The Decision

General Perspective on the Enforceability of Sale of Business Non-Competes

The Court of Appeal, in large part, allowed Martin's appeal. In so doing, the Court of Appeal confirmed that although restrictive covenants are prima facie unenforceable because they interfere with individual liberty and the exercise of trade, when used in connection with the sale of a business, they may be necessary to protect goodwill and legitimate business interests. The Court of Appeal stated that restrictive covenants given in connection with the sale of a business should receive less scrutiny than those between an employer and employee, particularly where the transaction involves two knowledgeable parties of equal bargaining power. Ultimately the question of enforceability depends on the reasonableness of the restrictions.

Factors in Assessing Enforceability – the Reasonableness Analysis

In considering the reasonableness of the restrictive covenants, the Court of Appeal considered four factors:

  • whether the covenants were ambiguous; and
  • the reasonableness of:
    • the geographic scope of the covenants,
    • the duration of the covenants, and
    • the extent of the prohibited activity.

The Court of Appeal found that the covenants were not ambiguous and that the geographic scope of the covenants was reasonable given the scope of the companies' business and their legitimate business interests.

However, the Court of Appeal determined that the duration of the covenants was unreasonable, because it was dependant on a future disposition of Martin's partnership interests, which itself was conditional on the consent of unascertainable third parties who owed no duty to Martin to act promptly or reasonably. In fact, such parties may have had an interest in withholding consent in order to limit Martin's competitive activities. Because the covenants had no fixed, outside limit they were found to be entirely unreasonable by the Court of Appeal.

While not determinative of the appeal, the Court of Appeal also found that the scope of the prohibited activities was overly broad, going beyond what was required to protect the companies' goodwill.

Implications of the Martin Decision

The Martin decision confirms that:

  • non-competition covenants entered into in connection with the sale of a business are subject to a lower degree of scrutiny than restrictive covenants entered into as part of an employment agreement; and
  • in assessing enforceability, courts will consider the reasonableness of restrictive covenants.

What is notable in Martin is that the restrictive covenants were found to be unenforceable in circumstances where the alleged competitive activity commenced eight days after termination of employment. This all-or-nothing approach to enforceability highlights the importance of drafting clear and reasonable limits on restrictive covenants because the failure to do so entirely undermines the effectiveness of an agreement, even when there is competitive activity that seems clearly within the intended scope of the restrictive covenants.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright Canada LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright Canada LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions