Canada: Even Transactional Employment Covenants Need Careful Review

Last Updated: March 12 2013
Article by George Waggott and Joshua Chad

The continued scrutiny by Canadian courts of post-employment covenants is confirmed in a recent decision from the Ontario Court of Appeal. In Martin v ConCreate,1 the Court held certain non-competition and non-solicitation covenants that arose in the context of the sale of a business to be unenforceable as their duration could extend indefinitely. Perhaps most troubling for employers and transaction lawyers is that the Court permitted the restrictive covenants to be challenged as unreasonable even in the face of the executive having received legal advice and having agreed that the restrictive covenants were reasonable at the time they were negotiated.

Key facts

While employed at ConCreate USL Ltd., Derek Martin had acquired a minority interest in the company and in a related business, Steel Designed & Fabricators (SDF) Ltd. ("SDF"). ConCreate USL Limited Partnership ("ConCreate"), a limited partnership controlled by TriWest Construction Limited Partnership ("TriWest LP"), purchased ConCreate USL Ltd. and SDF. In connection with the sale, Martin's holding company received a 25 per cent interest in TriWest LP, giving Martin an indirect interest in ConCreate and SDF. Martin was appointed president of ConCreate and SDF and signed restrictive covenants in favour of ConCreate and SDF, including a non-competition clause and a non-solicitation clause.

The terms of the non-competition and non-solicitation covenants were to end 24 months after Martin disposed of his indirect interest in TriWest LP. However, in order to dispose of the interest, Martin required the consents of the lenders of ConCreate, SDF, and their subsidiaries, whoever they might be "from time to time."

Within six months of the closing of the sale transaction, Martin's employment was terminated for cause. Eight days later, Martin started a competing company employing former ConCreate employees and managers. ConCreate and SDF started an action against Martin to enforce the restrictive covenants.

The court's ability to scrutinize the restrictive covenants

The Court acknowledged that the restrictive covenants arose in the context of the sale of a business, and thus a less rigorous test was to be applied than would have been the case had the restrictive covenants arisen out of an employment relationship. Moreover, the Court acknowledged that, at the time the agreements were signed, Martin had agreed that the covenants were reasonable, and Martin had the benefit of legal counsel. However, the Court maintained that, while all of these factors were important, they did not immunize the restrictive covenants from scrutiny. The Court held that its duty in safeguarding the public interest in free and open competition demanded that the Court conduct a deeper analysis of the restrictions.

Indeterminate duration of the covenants unreasonable

The Court held that the non-competition and non-solicitation covenants were unreasonable, and thus unenforceable, as their duration was not determinable. The duration of the covenants depended on the consents of third parties, those being the lenders "from time to time." This created an indeterminate obligation with no fixed or outside limit provided. The Court highlighted that these third parties owed no contractual duty to Martin to act promptly or reasonably. Furthermore, the third-party lenders had a commercial interest in limiting Martin's competition with ConCreate and SDF, and, thus, the lenders would be incentivized to withhold consent. The result was an overly broad set of restrictions with no guaranteed upper limit.

Overbroad prohibited activities in the covenants unreasonable

Although the Court's decision in favour of Martin rested on the indeterminate duration of the covenants being unreasonable, the Court also stated that it believed that the scope of the prohibited activities in the restrictive covenants was also unreasonable. The Court explained that Martin had no basis to know what new customers had begun to engage in business with SDF and ConCreate after he left. Thus, Martin had no way of knowing who he was not allowed to solicit. Furthermore, the Court explained that Martin could not be expected to know about every new product or service that SDF and ConCreate would start offering or plan to start offering after his departure.

Drafting restrictive covenants going forward

In drafting employment agreements, restrictive covenants or related transaction documents, employers should keep in mind that restrictive covenants must be reasonable at the time they are made, and they must be reasonable in light of the public interest in discouraging restraints on trade. Where restrictive covenants are not reasonable, they are not enforceable. Careful consideration must be given to the duration and scope of prohibited activities in restrictive covenants to ensure that their terms are reasonable. For duration, the term of a restrictive covenant should not rely on the consent of a third party. There should also be a specific upper limit to the duration that does not rely on an indeterminable event. In drafting the scope of prohibited activities, an effort should be made to ensure that the departing employee can readily ascertain what actions are prohibited and that these prohibitions are reasonable. If there is potential uncertainty as to what the employee can and cannot do, the restrictive covenant is at risk of being held to be unreasonable and thus unenforceable.


1. Martin v ConCreate USL Limited Partnership

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2013 McMillan LLP

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.

George Waggott
Joshua Chad
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.