As many employers know, restrictive covenants are notoriously
difficult to enforce because they must be "reasonable" in
relation to their subject matter, temporal and geographic scope, as
well as unambiguous in their meaning. Every year, restrictive
covenants in employment contracts are struck down by courts leaving
employers with little or no recourse against departed employees
engaging in competition.
In Rhebergen v. Creston Veterinary Clinic
Ltd, the plaintiff, a newly qualified veterinarian, signed
an employment contract in which she agreed to pay a certain amount
of money to the defendant if she set up a veterinary practice in
the same town as the defendant, or within 25 miles of the
defendant's premises, in the first 3 years after the
termination of the contract. If she set up a practice within 1
year, she had to pay the defendant $150,000; if within 2 years,
$120,000; and if within 3 years, $90,000. The figures were not
without foundation; they had been calculated with consideration to
the investment made in employing the plaintiff (including
mentoring, training and equipment), as well as the impact her
competition with the defendant would have on the defendant.
While the Court found that the term did constitute a
"restraint of trade" (albeit not a classic restrictive
covenant), and was thus subject to the "reasonableness"
analysis, it rejected the argument that the term was a penalty. The
Court also held that the term was reasonable in the circumstances
and unambiguous in its meaning.
Drafting of restrictive covenants must be done very carefully,
ideally with the assistance of legal counsel. As this case shows,
thinking outside of the box can be very beneficial. If the
employment contract had simply prohibited the plaintiff from
working as a veterinarian for 3 years within 25 miles of the
defendant's premises, it is quite possible that the covenant
would have been held to be unenforceable. But because it allowed
the plaintiff to practice her profession, albeit at a cost, it
seems the Court was more willing to enforce the covenant.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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