Canadian courts have consistently held that covenants in
employment agreements prohibiting a departing employee from working
for a competitor are in restraint of trade, and therefore
prima-facie un-enforceable. Non-competition covenants in employment
contracts will therefore not be enforceable unless they can be
demonstrated to be reasonable in all respects, particularly where a
non-solicitation covenant would be sufficient to protect the
employer's legitimate proprietary
What if an employee is permitted to compete with their former
employer if they so choose, but they agree that their choice to do
so will result in the payment of a specified "price" to
their former employer? Is this type of agreement enforceable? While
these types of non-competition "arrangements" have been
upheld in more than one Canadian jurisdiction, the precise
reasoning has not been entirely consistent between provinces.
In Ontario, there has been a line of cases upholding employment
contract clauses requiring departing employees who go to work for a
competitor to either forfeit a specific benefit or otherwise pay
money to their former employer. The "price" of
competition in these cases has varied, but has (successfully)
the forfeiture of gratuitous monthly retirement
the forfeiture of stock options that would otherwise have been
available to the employee had they left and not worked for a
the repayment of training costs4.
In all of these cases, the Ontario Court found that the clauses
were not in restraint of trade, given that they did not prevent the
employee from competing, pursuing their profession, or otherwise
doing "whatever they chose to do". Accordingly, the
clauses were not subjected to the usual reasonableness test.
More recently, in the British Columbia Court of Appeal's
decision in Rhebergen v. Creston Veterinary Clinic
Ltd.5 , the Court upheld a clause requiring a
veterinarian who started a competing clinic (within 25 kilometres
and within 3 years of departure) to pay his former employer a
pre-agreed sum of money. In reviewing the relevant authorities
(including the Ontario cases) the Court said that "Whether
such a clause in a contract of employment amounts to a recognized
restraint for the purposes of the doctrine, rendering the clause
unenforceable if unreasonable, is ... by no means settled
law." The Court found that the provision in issue was not a
conventional non-competition covenant, as it did not prevent the
employee for competing. The Court did, however, find that the
payment required by the arrangement was a form of
"restraint", and therefore had to satisfy the
"reasonableness" test. The Court considered the payment
to be reasonable in the circumstances, given that it was not
"extravagant" compared to the cost to the former employer
of having trained Dr. Rhebergen.
Employers seeking to restrain competition by former employees
may be able to do so by carefully crafting reasonable arrangements
requiring competing employees to forgo a benefit or pay a
reasonable price. The enforceability of these provisions, and how
they will be interpreted by our Courts may vary from province to
province. It may be that we have to wait to hear from the Supreme
Court of Canada for a definitive approach to the enforcement of
these types of clauses.
1 See Lyons v. Multari, for an Ontario
2 Woodward v. Stelco Inc. (1996), 20 C.C.E.L. (2d) 70
(Ont. Gen. Div.
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