Employers have the option of including a non-compete clause in
an employment contract. The enforcement of this clause can provide
an employer with the security of knowing that their former employee
will not immediately join up with a competitor. The inclusion of
this clause may appear to provide employers with peace of mind
without any potential draw backs. The British Columbia Superior
Court in Ostrow v Abascus Management Corporation
Mergers and Acquisitions reminded employers that the
enforcement, or even inclusion of a non-compete clause comes with
In Ostrow an 11 month employee was awarded 6
months' pay in lieu of notice in a wrongful dismissal case in
part because of the employer's inclusion of a non-compete
clause. Ostrow, a 42 year specialist in international and US
taxation was terminated on a without cause basis. In his
termination letter he was reminded of the existence of a
non-compete clause in his contract – as a result he did not
take steps to mitigate by immediately beginning a job hunt. The
Court took the position that whether or not the clause was
enforceable was irrelevant to the question of the appropriate
notice period. The key for assessing notice was whether or not the
clause was included in the contract and whether or not the employee
believed he was bound by the clause.
The decision to award higher notice periods to employees because
of non-competition agreements is not isolated to British Columbia.
In Ontario, in Murrell v Burns International Security
Services Ltd an employee of three years was awarded 8
months' notice in part because of the existence of a one year
non-compete clause in his contract. The Court again was not
concerned with whether or not the clause was enforceable –
the mere inclusion of a non-compete clause was sufficient to
trigger a higher notice period.
This is potentially troubling for employers. The Court has
essentially taken the position that an employee may benefit in
terms of increased notice from a clause that the employer may not
even be able to enforce. Employers would benefit from consulting
with a lawyer to assess whether or not their non-compete clause
will be enforceable. This is because if it is unlikely that the
employer will be able to enforce the clause, it may be beneficial
to inform the employee that the clause will not be enforced. This
may allow for the employer to possibly benefit from the
employee's failure to mitigate by beginning a job search.
If a non-compete clause is enforced, as in the Ontario decision
of Khan v Fibre Glass-Evercoat
Co., a notice period can also be extended. In
this case the employee was bound to a non-compete clause for five
years. The Court compensated the two year employee for being
restricted by this non-compete clause by adding an additional five
months to the notice period. If the Courts were to continue to
apply this approach it could mean that for each year of the
enforcement of a non-compete an employer will be liable for a month
of notice. Ultimately, however, any assessment of notice will
depend on the specific facts of the case.
Employers should carefully assess the inclusion and
enforceability of any non-compete clause in an employment contract.
Employers should also be aware of the possible risks that should be
weighed of such a clause in the case of a wrongful dismissal claim.
The lawyers at CCPartners are experienced in dealing with the
enforceability of contract provisions and with navigating the
assessment of damages in lieu of notice. CCPartners can help you to
make an informed assessment of the best decision for your company
to make when considering whether or not to insist on a non-compete
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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