Canada: Ontario Court Of Appeal Signals Greater Scrutiny Of Restrictive Covenants

Employers will need to take greater care in drafting non-competition and non-solicitation covenants in the context of commercial transactions following a recent Ontario Court of Appeal decision. In the recent decision for Martin v. ConCreate USL Limited Partnership, the court struck down non-competition and non-solicitation covenants as unreasonable and unenforceable, even though they had been freely negotiated during a commercial transaction in which all parties had received independent legal advice.


Derek Martin (Martin) worked for ConCreate USL Limited Partnership (ConCreate), a company engaged in concrete forming work for bridge construction, for approximately 20 years. During that time, he acquired a minority interest in ConCreate and a related company (SDF).

When ConCreate and SDF were sold to a third party (TriWest), Martin cooperated in the commercial transaction. In addition to certain cash payments and debt forgiveness, Martin was granted a number of "limited partnership units" of the purchaser, TriWest. Martin was also hired as president of ConCreate and SDF. In this context, Martin agreed to covenants that restricted him from competing with ConCreate or SDF, or from soliciting their employees, customers, dealers, agents or distributors across Canada for a period of two years after disposing of his units of TriWest.

Shortly after the transaction, the relationship between Martin and TriWest soured and Martin's employment was terminated. Martin then founded a new company that competed with ConCreate and SDF, and he hired several former ConCreate employees to join him. ConCreate, SDF and TriWest brought a claim against Martin alleging violations of the non-competition and non-solicitation covenants. Martin responded with an application of his own to declare the covenants unenforceable.

Martin's application was denied by the Ontario Superior Court of Justice. On appeal from that decision, the Ontario Court of Appeal overturned the Superior Court's judgment and declared the covenants unreasonable and unenforceable.

The Ontario Court of Appeal's decision

The Ontario Court of Appeal recognized and affirmed a number of general principles that employers have long recognized in drafting restrictive covenants. In order to be enforceable, the covenants must not be ambiguous and must be reasonable in terms of their geographic scope, their duration, and the scope of the activities being restricted.

The court also recognized that covenants negotiated during commercial transactions should not be scrutinized as closely as covenants contained in employment contracts on the basis that the potential power imbalance between employers and employees is unlikely to exist in commercial transactions. Nonetheless, the court found that even in the commercial context, restrictive covenants must still be analyzed to ensure they are reasonable. There is an important public interest in promoting competition and avoiding unreasonable restraints on trade.

The court found that the geographic scope of the covenants was reasonable. Even though ConCreate and SDF worked primarily in Ontario and Alberta, it was appropriate for the covenants to restrict competition and solicitation throughout Canada, because the parties clearly expected the business to be national in scope going forward.

However, the covenants were found to be unenforceable because there was no "fixed, outside limit" to their duration. The covenants would expire two years after Martin disposed of his units of TriWest, but disposal of the units was subject to approval by TriWest's board of directors and unspecified lenders. Since it was unknown whether the lenders would approve, or even who the lenders would be at the relevant time, the covenants might continue indefinitely. That would be unreasonable.

The court also criticized the scope of the activities that the non-solicitation covenant sought to restrict. It found that there was no need to restrict Martin from soliciting customers, employees, dealers, etc., for lines of business ConCreate and SDF did not expect to engage in at the time the covenants were signed. Similarly, there was no need to restrict Martin from soliciting individuals who were not involved with ConCreate and SDF at the time Martin worked there.

The court considered that the covenants were negotiated as part of a commercial transaction, that all parties had independent legal advice, and that they expressly agreed in the relevant contracts that the covenants were reasonable. However, the court concluded that ". . . while these are important factors, they do not entirely immunize the clause from scrutiny. Safeguarding the public interest in free and open competition . . . requires that the court conduct a greater level of independent analysis."

Finally, the court was influenced by the fact Martin held his interest in ConCreate and SDF through a limited partnership and had specifically agreed not to take part in the control or management of the companies. The court contrasted this interest to that of a shareholder in a private company, who can take an active role in the management of the corporation and may be able to assume the functions of the directors pursuant to a unanimous shareholders agreement. Keeping these differences in mind, the court held that the reasonableness of restrictive covenants may be more closely scrutinized when negotiated in commercial transactions that provide the party being bound with more limited rights in the management of the company.


The decision is a helpful reminder of the principles that will affect the analysis the courts will undertake when determining whether a covenant is reasonable; specifically, restrictive covenants must not be ambiguous and must be reasonable with respect to geographic scope, duration, and the activities being restricted.

The court also signals a willingness to more closely scrutinize restrictive covenants that are contained in commercial transactions. In particular, the decision reminds employers to ensure there is a "fixed, outside limit" in respect of the duration of the restrictive covenant. A covenant whose expiry is conditional on future events may not be enforced on the basis that it does not have a fixed, outside limit, unless it is very clear that those events must occur within a specified, reasonable period of time and are defined by clearly ascertainable parameters.

Norton Rose Group

Norton Rose Group is a leading international legal practice. We offer a full business law service to many of the world's pre-eminent financial institutions and corporations from offices in Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.

Knowing how our clients' businesses work and understanding what drives their industries is fundamental to us. Our lawyers share industry knowledge and sector expertise across borders, enabling us to support our clients anywhere in the world. We are strong in financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and pharmaceuticals and life sciences.

We have more than 2900 lawyers operating from 43 offices in Abu Dhabi, Almaty, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Bogotá, Brisbane, Brussels, Calgary, Canberra, Cape Town, Caracas, Casablanca, Dubai, Durban, Frankfurt, Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal, Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome, Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate offices in Dar es Salaam, Ho Chi Minh City and Jakarta.

Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton Rose Canada LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc), and their respective affiliates.

On January 1, 2012, Macleod Dixon joined Norton Rose Group adding strength and depth in Canada, Latin America and around the world. For more information please visit

Norton Rose will join forces with Fulbright & Jaworski L.L.P on June 1, 2013, creating Norton Rose Fulbright a global legal practice with significant depth of expertise across the USA, Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.

The content of this article is intended to provide a general guide to the subject matter. Specialist 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
Affleck Greene McMurtry LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Norton Rose Fulbright Canada LLP
Affleck Greene McMurtry 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