Canada: Two Topics Relating To Restraint Of Trade In Employment: Practical Alternatives To Restrictive Covenants And The Impact Of Restrictive Covenants On Reasonable Notice

Last Updated: May 7 2014
Article by Valerie Dixon and Richard E.K. Truman

I. Practical Alternatives to Restrictive Covenants: Two Recent Cases

A. Introduction

Given that it appears that restrictive covenants (at least in the employment context) usually aren't worth the paper they're written on, perhaps it's time that we lawyers get a little more creative and look for alternatives. Let's look at two cases where smart counsel (or perhaps their smart clients) did just that, with great success.

1. Example #1: Levinsky v. The Toronto-Dominion Bank, 2013 ONSC 5657

Facts

Blair Levinsky started his career with TD Bank in 1999 after receiving his LLB/MBA. Apparently, one summer with a firm in Toronto was enough to convince him that the real money was not in law but in banking. And he was certainly right about that: within four years of joining TD, his annual compensation rose to more than $800,000.

One part of the compensation program offered by TD was the Long Term Compensation Plan ("LTCP"). The plan changed somewhat over the course of Mr. Levinsky's tenure but in the last three years of his employment, the LTCP centered around the granting of Restrictive Share Units ("RSUs"). Each year, an employee would receive a certain number of RSUs (calculated on the employee's compensation) and those RSUs would mature into cash three years after being granted. However, in the event that the employee quit before the allocated RSUs matured, the employee would not receive any pay out for the RSUs.

In 2010, Mr. Levinsky decided to start his own hedge fund and tendered his resignation to TD. He was therefore denied entitlement to the RSUs granted to him for the previous three years, the cash value of which was over $1.6 million. Not surprisingly, Mr. Levinsky decided to challenge TD. His clever argument was that the provision of the LTCP requiring forfeiture of the value of the RSUs was akin to a restrictive covenant, was unreasonable and thus unenforceable.

It is apparent from the reasons for judgment that the court deemed it quite important that TD had been meticulous in consistently making it clear to employees that the RSUs did not mature until three years after granting. For example, TD provided a "Questions & Answers" sheet about the RSUs which made this clear and annual compensation statements also set out the requirements for payment. Proxy circulars had similar reminders about the maturity feature of the RSUs. Last but certainly not least, employees were required to sign a Participation Agreement (on an annual basis) which required the employees participating in the LTCP to agree to be bound by all the terms of the plan. Although Mr. Levinsky complained that he had no choice but to accept the terms, the court had little time for such argument, noting that Mr. Levinsky had certainly received the benefit of the plan and therefore was required to accept the burdens of the plan as well.

However, it is worth noting that the forfeiture clause in the LTCP was not introduced until a few years after Mr. Levinsky became entitled to participate in the plan. He argued that the introduction of the forfeiture provision, without consideration, was made unilaterally and was unconscionable. The evidence, though, reflected that he had willingly accepted the terms of the Participation Agreement and made no complaint about the new provisions. He also accepted the cash payments he did receive when his RSUs matured. As a "sophisticated individual, trained in both law and business," the court found that Mr. Levinsky was not a "contracting party laboring under an imbalance of bargaining power" (¶44). Query whether an employee not as sophisticated (or well compensated) would have had more success with this argument. That being said, the fact that a significant benefit was received without complaint seems to have been the more persuasive factor from the court's perspective, so perhaps not.

a. Restraint of Trade?

The trial judge then turned to Mr. Levinsky's main argument: that the forfeiture provision constituted a restrictive covenant (and an unreasonable one at that). First, of course, Mr. Levinsky had to convince the court that the provision was in fact a restraint of trade.

The court accepted that restraints of trade don't always look like traditional restrictive covenants:

[50] Whether a particular provision operates in restraint of trade falls to be determined not merely by the form of the clause, but by the effect of the clause in practice. So, for example, where a clause on its face contained no direct covenant to abstain from any form of competition, but did require the former employee to share profits with his former employer on any new business written following his resignation, the clause operated to cause the employee to refuse business he otherwise would take, thereby constituting a restraint of trade.

He then undertook an extensive review of the law (from both Canada and elsewhere) with respect to the impact of departure on future or deferred compensation. This review is summarized below:

1. Termination and entitlement to future income

Inglis v. The Great West Life Assurance Co., [1941] O.R. 305 (C.A.): the employment contract provided that the employee would continue to receive commissions on business written during the term of employment, despite termination, unless the employee became connected to or did work for any other life insurance company, in which case the commissions were forfeited. The Court of Appeal concluded that the clause was neither a restraint of trade nor a penalty.

Woodward v. Stelco Inc., [1996] O.J. No. 1273 (Gen. Div.): the employment contract provided that the employee would receive an income stream in addition to the employee's pension so long as the employee did not, after retirement, engage in any activity that was in competition with the employer. The court found that the clause did not constitute a restraint of trade because it was not a benefit the employee was entitled to per se.

Furlong v. Burns & Co. Ltd., [1964] 2 O.R. 3 (H.C.J.) (S.C.): a settlement agreement entered into after termination of employment required the employer to pay a monthly retirement allowance, subject to the employee not conducting himself in a manner detrimental to the employer. The court found that this was a restraint on trade and unreasonable.

Wyatt v. Kreglinger, [1933] All ER Rep 349 (C.A.) (England): the employer granted the employee a retiring allowance upon termination, on the condition that the employee not work in the wool trade. The court found that the provision was an unreasonable restraint on trade. (The court in Levinsky was obviously not a fan of this decision, as can be seen at ¶60 of the reasons.)

2. Termination and the claw-back of exercised stock options

Nortel Networks Corp. v. Jarvis, [2002] O.J. No. 12 (S.C.): the terms of the employee's stock option grant stated that if the employee accepted employment with a competitor within 12 months of exercising any options, the employee was required to pay the employer any profits resulting from the exercise of the options. The court held that a contractual provision requiring an employee to forego a benefit as a result of competition was not a restraint of trade. While requiring the disgorgement of profits, the provision was akin to a penalty, but not an oppressive one.

Tullett Prebon PLC v. BGC Brokers L.P., [2010] EWHC 484 (Q.B.) (England): the terms of the employment contract required the repayment of retention and signing bonuses if the employee resigned before the end of the employment term. The court found that this was neither a restraint of trade nor a penalty.

3. Termination and deferred compensation

Lichters & Anor v. Depfa Bank PLC, 2012 IEHC 10 (Ireland): the employees were entitled to deferred cash bonuses as part of an incentive plan but the bonuses would only be paid if the employees were still employed at the time the grants matured (two years later). The employees resigned and sued for the bonuses. The court rejected the suggestion that the retention condition was a restraint of trade, but also said that even if it was, it was reasonable.

Finnegan v. J&E Davy, [2007] IEHC 18 (Ireland): this case also involved deferred cash bonuses but the differences were that: 1) the employee had protested the deferral structure, and 2) the bonuses were paid unless the employee went to work for a competitor. The court found that the real purpose of the deferral was to restrict employees from working for competitors and was thus a restraint of trade.

Lloyd v. Commonwealth Bank of Australia Limited, [2006] NSWIRComm 129 (Australia): the employee participated in a bonus plan in which payments were deferred and which required the employee to be employed at the time the deferred payment was to be made. The employee resigned and sued for the deferred payments. The court found that the plan did not constitute a restraint of trade because the employee was free to take employment with any competitor and the terms of the plan were not so coercive that they would constitute a restraint of trade.

Singh v. Cargill TSF Asia Pte Ltd., 2012 SGCA 42 (Singapore): the employee was entitled to bonus payments which vested as soon as granted but were payable over a period of time. However, if the employee resigned and went to work for a competitor, he would not receive them. The court found that this was a restraint of trade and unreasonable because: 1) the payments were vested even though they were paid over time, and 2) the forfeiture was related to the employee's employment with a competitor as opposed to simply ceasing to work for the employer.

Deghenghi v. Ayerst, McKenna & Harrison Ltd., [1998] J.Q. No. 1252 (C.A.): the employee received shares as part of an incentive plan. The plan provided for forfeiture if the employee became involved with a competitor. The court found that the forfeiture clause was akin to a restrictive covenant and unenforceable because its scope was unreasonable. FLS Transportation Services Inc. v. Piccioni, [2005] J.Q. No. 9443: a provision which resulted in the diminishment in value of issued shares upon termination of employment was found not to be a restraint of trade because it was not tied to the employee competing with the employer.

Deming v. Nationwide Mutual Insurance Company, 905 A.2d 623, 2006 (Connecticut, USA): the Court held that a forfeiture clause in a deferred compensation plan which allowed the employer to deny further payments in the event the employee resigned to work for a competitor was a restraint of trade.

b. The Decision

The trial judge found that the principles to be taken from these cases were:

  1. a clause that "operates to forfeit deferred compensation upon or following the cessation of the contract"(¶81) must be analyzed to determine whether the forfeiture is tied only to the cessation of employment or to the employee engaging in competition with the employer. If it is the former, then it is unlikely to be found to be a restraint of trade.
  2. The court should still be concerned with whether the clause was the product of unfair dealing or bargaining
  3. The court must also look at whether the employee's interests were vested at the time the forfeiture was effective.

In the result, the trial judge held that because the forfeiture provision in the LTCP was tied only to Mr. Levinsky ceasing employment with TD, rather than any post-employment competition on his part, it was not a restraint of trade. Rather, the LTCP was structured as a "loyalty incentive." Mr. Levinsky was unsuccessful and his claim was dismissed. He did not launch an appeal.

2. Example #2: Rhebergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97

Approximately six months after the decision in Levinsky was released came our Court of Appeal's decision in the Rhebergen case. Unlike Levinsky, this case involved a true restraint of trade, albeit not a classic restrictive covenant.

a. Facts

Ms. Rhebergen was a young veterinarian looking to gain experience in the field of dairy medicine. Upon obtaining her license to practice, she entered into an employment agreement with the defendant for a three year term. The defendant's work was mainly drawn from a number of dairy farms in the Creston area—an area that had very few vets (only two within 100 miles and those were in Idaho).

The employment agreement Ms. Rhebergen was required to sign included a "non-competition" provision which provided that if she "set up" a veterinary practice either in Creston or within 25 miles of the defendant's premises in Creston, Ms. Rhebergen would have to pay the defendant a certain amount depending on when she set up the practice. Thus, if she set up within one year of terminating the agreement, she was to pay the defendant $150,000, if within two years, then $120,000, and if within three years, then $90,000. These amounts were calculated by the defendant based on previous experience and the cost of the investment associated with hiring an associate (being the cost of mentoring, training and equipment), as well as their estimation as to the impact of her departure on the defendant's goodwill.

The employment relationship soured after 14 months and Ms. Rhebergen indicated to the defendant that she intended to resign. The employment contract included a clause that prevented her from terminating the contract before the end of the three year period and thus the contract was terminated by the defendant for cause (on the basis of Ms. Rhebergen's breach). Ms. Rhebergen had big plans, though: she wanted to open her own vet practice in Creston and commenced proceedings under the stated case Rule seeking a declaration that the non-competition provision was unenforceable.

b. Trial Judge's Decision

The trial judge found that the clause was unenforceable because:

  • the clause was a restraint of trade even though Ms. Rhebergen was not prohibited from competing with the defendant;
  • it was not clear what was meant by the phrase "set up a veterinary practice," and thus the clause was ambiguous; and
  • the amounts required to be paid by Ms. Rhebergen under the clause were a penalty rendering the clause an unreasonable restraint of trade.

c. The Appeal Decision

The appeal was heard by Justices D. Smith (who wrote the decision for the majority), Bennett and Lowry (who dissented). Interestingly, they agreed that the clause was a restraint of trade and that the amount required to be paid under the clause was not a penalty but disagreed on whether the clause was ambiguous.

d. The Dissent

In his reasons for judgment, Justice Lowry commented that whether clauses like the one Ms. Rhebergen was subjected to are restraints of trade is not settled law. He recognized two lines of cases: 1) the "functional" approach, whereby the court must determine whether the clause attempts to or does functionally restrain trade, in which case the reasonableness analysis is applied, and 2) the "formalist" approach, which requires that the clause actually be structured as a restraint on competition in order for the reasonableness analysis to be applied.

Justice Lowry then went on to review a number of English cases in which the functional approach was applied. However, he also acknowledged the line of formalist cases out of Ontario (including the Levinsky decision). Ultimately, Justice Lowry sided with the English courts and said this:

[42] Here, against this background of conflicting authority, like the judge, I consider clause 11 of the associate agreement constitutes a restraint of trade. In my view, the functionalist approach established in English law is to be preferred as the legal basis for determining whether clauses that burden employees with financial consequences, whether by payment or forfeiture, they would not otherwise have for engaging in post-employment competition constitute a restraint on trade. In the words of Lord Wilberforce, it is a matter of the effect of the clause in practice over its form.

Ms. Rhebergen's employment contract did, in Justice Lowry's reasoning, constitute a restraint of trade because while it did not prohibit her from competing with the defendant, it did compromise her ability to do so. Therefore, the clause was subject to the reasonableness analysis.

The reasonableness analysis focused solely on the question of whether the clause was ambiguous. In Justice Lowry's reasoning, the parties could not have intended that Ms. Rhebergen would have to pay the defendant such a significant sum just for providing vet services in the geographic location established in the clause (as this would be distinct from a practice being "set up"). Justice Lowry found that the clause was ambiguous, given that there was no "prescribed or understood basis upon which it can be said a professional practice has been established in the circumstances" (¶64). Therefore, the clause was unenforceable.

On the question of whether the clause constituted a penalty, Justice Lowry found that the trial judge's decision was faulty in that it was without evidentiary support. The amount Ms. Rhebergen was required to pay was not extravagant or unconscionable in the circumstances. Justice Lowry also held that even if the clause had constituted a penalty, that alone would not render the covenant unreasonable. However, he also said that the amount of the required payment would be properly considered in the context of the usual reasonableness analysis.

The only basis on which Justice D. Smith (Justice Bennett concurring) disagreed with Justice Lowry was on the question of the ambiguity of the clause. Her focus was threefold: 1) the plain and ordinary meaning of the words used, 2) the factual matrix in which the agreement was made, and 3) the manner in which the issue was brought before the court.

Justice Smith noted that Ms. Rhebergen, in her own pleadings, had stated that she intended to "set up a mobile veterinary practice in Creston." She had also sworn an Affidavit in which she said that she had been encouraged to set up her own clinic as an alternative to the defendant. Justice Smith found this to be indicative of a common understanding between the parties of the meaning of the phrase "set up a veterinary practice." She also commented that in the context of Creston, a rural community, there was no practical difference between setting up a veterinary practice and simply practicing as a veterinarian. Either she was providing services or she wasn't. As Justice Smith noted, Ms. Rhebergen wanted to set up a mobile vet practice servicing dairy farms; there were only eight dairy farms in Creston and all of them were within 25 miles of the defendant's premises. There is no doubt that such activity on the part of Ms. Rhebergen would trigger the clause. As Justice Smith said at ¶85, "[t]hat is the only reasonable interpretation that, in my view, could be made on a fair reading of the clause." Therefore, she allowed the appeal and dismissed the action.

B. Points To Take Away

  1. Alternatives to classic restrictive covenants should be considered: The cases reviewed in this paper make it clear that employment counsel (particularly those drafting employment agreements and compensation plans) need to think outside the box. Non-solicitation and non-competition covenants aren't the only options.
  2. Focus on what your client wants to achieve: Is it increased loyalty? Is it protection of goodwill? If it's loyalty the client wants to achieve, then a deferred compensation plan may be most appropriate. If it's protection of goodwill, then a penalty-type provision may be in order.
  3. Consider whether what you draft will be considered a restraint of trade and plan accordingly: Simply because you draft something that doesn't look like a restrictive covenant doesn't mean that it won't be subject to the rigorous reasonableness test. If you want to avoid that level of scrutiny, it's probably best not to have the effect of the contractual provision be dependent on the employee competing with the employer. Instead, consider a provision that will apply regardless of whether the employee competes with the employer.
  4. Ensure you are covering all your bases: Part of the reason why TD was successful was because it was able to show that it had given Mr. Levinsky every opportunity to know and understand the forfeiture provisions of the LTCP. Without that evidence, the outcome might have been quite different. Make sure that the overall compensation plan is structured, rolled out and delivered in a way that is consistent, informative and fair.
  5. Focus on the details of the compensation plan: Be cognizant of whether the benefit vests at the time it is granted or whether vesting is deferred to the time of maturity. If there is no vesting at the time of the grant, the employee cannot argue that a vested benefit has been taken away by a forfeiture provision (and thus the provision is less likely to be viewed as a restraint of trade).
  6. If litigation ensues, be ready to deal with the fact that we now have somewhat conflicting Court of Appeal decisions from BC and Ontario: Our Court of Appeal has expressly declined to follow the Ontario line of decisions exemplified in Inglis (the formalist approach) in favour of English decisions (the functionalist approach). Expect counsel to try to distinguish Rhebergen if the type of provision before the court is a forfeiture of future income as opposed to the payment of a penalty.
  7. Don't be afraid of "penalties": Providing for damages to be paid in the event the employee enters into competition with the employer can work but it is imperative that sufficient thought be put into how the damages are to be calculated. The agreement will have a much better chance of survival if there is logic behind the numbers.

II. Impact of Restrictive Covenants on Reasonable Notice

Employment lawyers will be familiar with Bardal v. The Globe & Mail Ltd., [1960] O.W.N. 253 (H.C.J.) where the Ontario High Court of Justice set out the oft-cited basic criteria for determining reasonable notice:

[21] There can be no catalogue laid down as to what is reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.

In addition to the Bardal factors, courts have also taken into consideration inducement to leave previously secure employment, employer practices and policies respecting notice, industry custom, whether the employee had some forewarning of the dismissal, and the terms of any restrictive covenants enforceable at end of the employment relationship.

Curiously, the impact of restrictive covenants on reasonable notice has received very little judicial commentary. Rather, where courts have considered non-compete and non-solicit clauses in assessing reasonable notice, that consideration has tended to be somewhat cursory.

To date, no Canadian court appears to have provided any authoritative pronouncement on the matter. Nevertheless, it is arguable that the more the restrictive covenant interferes with the dismissed employee's alternate employment prospects, the more likely it is that the period of noncompetition or non-solicitation will influence the court's determination of reasonable notice.

This paper provides a brief review of cases where courts have taken restrictive covenants into account when assessing reasonable notice. It should be noted that a discussion of the enforceability of restrictive covenants in the context of wrongful dismissals is beyond the scope of this paper. In the cases that follow, the restrictive covenants were either enforceable or the departing employees had believed them to be enforceable and had governed themselves accordingly.

A. Where Reasonable Notice Matches Restrictive Covenant Term

1. Dimmer v. MMV Financial Inc., 2012 ONSC 7257

In this case, the 50 year old plaintiff worked for four years as senior vice-president at the defendant company. The plaintiff's primary role was to arrange financing for technology and biotechnology companies. An internal restructuring led to a significant decrease in the plaintiff's production. The defendant terminated his employment in March 2010. The plaintiff's employment contract was contained in a March 2006 letter offering him employment. The offer was conditional on the plaintiff entering into non-disclosure, confidentiality and non-competition agreements. The noncompetition agreement mandated that for a period of one year following the termination of his employment, regardless of the reason for termination, the plaintiff could not compete directly or indirectly in marketing or selling a product or service that was competitive to those offered by the defendant. The plaintiff sued for damages for wrongful dismissal when he was terminated.

The court noted that, while there was some question as to the enforceability of the restrictive covenants, and in fact, one of the principles of the defendant company wondered during testimony whether the covenant was enforceable at all, the plaintiff believed he was bound by the terms and governed himself accordingly. One year after his termination, the plaintiff found comparable fulltime employment in the financial services industry.

In fixing reasonable notice, the court began by citing the Bardal factors and made specific reference to the following factors: the plaintiff was a senior executive (typically awarded lengthier notice periods), was engaged in a niche market and the defendant company had reached out to the plaintiff and offered him the job while he was fully employed (although the court did not find that he had been induced away from his former employer). The court went on to note as follows:

[99] As noted above, MMV required Mr. Dimmer to agree to be bound by a noncompetition agreement as a term of his employment and it insisted that he abide by the agreement for one year following his dismissal. Mr. Dimmer complied. In my view, this agreement effectively eliminated any opportunity to obtain similar employment during that year and it seriously impeded his ability to obtain employment at all, even in the fields in the reach beyond the non-competition agreement. This too is a factor weighing in favour of a longer notice period.

The court awarded the plaintiff 12 months notice, the same period for which the plaintiff understood he was barred from competing against his former employer.

2. Tremblett v. Imperial Life Assurance Co. of Canada, 1990 CarswellNfld 57, 29 C.C.E.L. 225

The plaintiff in this case was hired as a sales manager and insurance agent for the defendant in 1984. After three years and four months, the defendant terminated the plaintiff's employment as sales manager without notice but offered him the opportunity to continue as an agent. The plaintiff declined and the defendant terminated the agreement in its entirety. The plaintiff then sued for wrongful dismissal.

During the course of his employment, the plaintiff had been forced to agree to an addendum to his employment agreement prohibiting him on termination from contacting or soliciting any person who was a policyholder or annuitant of the defendant company for a period of 12 months. The court found that the plaintiff had been wrongfully dismissed. In determining reasonable notice, the court listed the usual factors but placed particular emphasis on the plaintiff's chances for alternate employment. The plaintiff's evidence was that he had been fearful of unknowingly violating the conditions of the restrictive covenant he had been forced to sign. The court fixed reasonable notice at 12 months, despite the plaintiff's relatively short tenure with the company. In determining that notice period, the court did not expressly weigh the usual factors. Rather, the court emphasized the effect the restrictive covenant had on the plaintiff's alternative employment prospects:

[34] In my view, the restrictive condition stated in the addendum, which the defendant required the plaintiff to accept, effectively and seriously impaired his ability for a period of 1 year to continue working in his chosen vocation of life insurance agent. Under such a condition, the plaintiff was deprived of the peace of mind and freedom of opportunity to re-establish himself as an agent with another company. Accordingly, I find that a reasonable period of notice in these circumstances is 12 months.

B. Where Reasonable Notice Does Not Match Restrictive Covenant Term

1. Watson v. Moore Corp. (1994), 20 C.C.E.L. (2d) 17 (B.C.S.C.), rev'd (1996) 144 D.L.R. (4th) 252 (B.C.C.A.)

The plaintiff here brought a claim for common law damages after she was dismissed from her job as a sales or account executive. The plaintiff had been employed by the defendant in a number of roles between 1968 and 1993. In 1987, the plaintiff was presented with a new employment contract which sought to limit reasonable notice to the Employment Standards Act minimum, plus one week for every two years on the job. The new contract also included an onerous non-competition covenant to take effect upon termination. The non-competition clause was tightened up in 1989. The defendant dismissed the plaintiff after a poor performance review in 1993, offering her 20 weeks' pay in accordance with the terms of the employment contract. The plaintiff brought an action for damages, claiming among other things, that there had been no consideration for the changes to her employment contract and that she was therefore entitled to common law notice.

At trial, the defendant successfully argued that the plaintiff's continued employment constituted consideration for the changes to her employment terms. A majority of the Court of Appeal disagreed. The Court assessed damages as follows:

[47] The parties have submitted authorities that suggest a reasonable period of notice is from 12 to 18 months. Keeping in mind the principles approved by this court in Ansari v. B.C. Hydro and Power Authority ... I am most influenced by the plaintiff's age, and years of service but in this case there are two further important factors: first, that a substantial portion of her salary was generated by commissions that could not easily be duplicated in alternative employment, and second, that the defendant led the plaintiff to believe she was bound by a restrictive covenant.

While the court clearly took the restrictive covenant into account, the decision does not indicate for how long the plaintiff was prohibited from competing. Reasonable notice was fixed at 18 months.

2. Murrell v. Burns International Security Services Ltd. (1994), 5 C.C.E.L, (2d) 124 (Ont. Gen. Div.), aff'd 33 C.C.E.L. (2d) 1 (Ont. C.A.)

The plaintiff was employed by the defendant as branch manager from July 1988 to March 1991. He was summarily dismissed on March 25, 1991. The defendant alleged cause (sexual harassment and discrimination). The court determined there was no cause and that the plaintiff had been wrongfully dismissed.

The plaintiff claimed 12 months notice on the basis that he was a senior manager and subject to a 12 month non-compete agreement (the terms of which were not discussed in the judgment). The court took the non-compete into account in fixing reasonable notice at eight months:

[52] There is some doubt as to whether a non-competing agreement could be invoked by an employer who dismisses the employee but the existence of such an agreement is one factor to consider in determining proper notice.

[53] I do not feel 12 months notice was called for in these circumstances. The defendant claims three to four months is sufficient notice on the basis of one month per year's service. When I consider the managerial position of the plaintiff and the abruptness of his dismissal, as well as the non-competing agreement, I consider that eight months' notice would be proper ...

The defendant appealed the length of the notice and the bonus. In dismissing the appeal, the court noted:

[2] In fixing the length of the notice period, the trial judge took into account the existence of a non-competition clause and the abruptness of the respondent's dismissal. We are not persuaded that the trial judge erred in considering these factors. The respondent did not commence fulltime work with a competing firm until the 12-month period under the non-competition clause had expired.

C. Practical Considerations

As Molloy J. stated in McKay v. Eaton Yale Ltd., 1996 CanLII 8234 (Ont. S.C.), [1996] O.J. No. 3982 (QL), 31 C.C.E.L. (2d) 295 (Gen. Div.), "[t]he determination of the appropriate notice period for dismissed employees is an exercise which involves more art than science." This statement appears to be particularly true in regards to the impact of restrictive covenants on reasonable notice. It is suggested that the more the restrictive covenant interferes with the departing employee's alternate employment prospects, the more likely it is to impact reasonable notice. However, as noted above, there has been very little commentary on the matter and restrictive covenants remain only one factor to consider among many.

From an employer counsel perspective, employers should consider limiting reasonable notice by including in the employment agreement a termination clause which limits the employee's entitlement to severance. Assuming the termination provision is enforceable, this will prevent the court from mapping the restrictive covenant period onto reasonable notice. Employers should also consider favouring well-defined non-solicit clauses over non-compete clauses, the former being more likely to be enforced and less likely to prohibit departing employees from mitigating their losses. Finally, restrictive covenants in employment contracts should be limited to the reasonable period of time the employer requires to protect its legitimate interests. From the dismissed employee's perspective, employee counsel is well advised to take restrictive covenants into account in advocating for a longer notice period.

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.

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Authors
Valerie Dixon
Richard E.K. Truman
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Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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