A recent case out of British Columbia signals restrictive
covenants may be a factor supporting extensions in common law
notice periods for terminated employees.
When an employee is terminated without notice or cause, they
will be entitled to either what is specified in their employment
contract, if applicable, or notice (or pay in lieu of notice) at
common law. Traditionally, following the decision of Bardal
v. Globe and Mail, courts have looked to a number of
factors when determining the appropriate notice period at common
law, including the nature of employment, length of service, age and
availability of comparable employment.
The plaintiff was employed as a Senior Manager in the
company's Structured Financial Solutions group, where he
specialized in US taxation. He initially provided services as a
consultant. When he became an employee, he was asked to sign an
employment agreement which contained a six month non-competition
The plaintiff had been employed with Abacus Management for only
9 months when his employment was terminated. Upon termination, the
plaintiff was provided with a letter which reminded him of the
non-competition clause in his employment contract.
Ultimately the court determined that the appropriate notice
period was six months, due in part to the non-competition
The company had argued that it did not attempt to enforce the
clause, nor had it done so in the past with other employees. The
court did not accept this argument, finding that the
non-competition clause was relevant because the plaintiff was led
to believe that he was bound by it. The company also argued that it
had assisted the plaintiff in his job search. The court found that
this reduced the impact of the clause, but did not negate its
A similar conclusion was reached in an Ontario decision from a
few years ago. In Dimmer v. MMV Financial Inc., the plaintiff
had also signed a non-competition agreement. Upon termination, he
too was reminded of its terms. The court found that the plaintiff
believed that he was bound by the non-competition agreement. The
court held that the non-competition agreement, which was for a
period of one year, effectively eliminated any opportunity for the
plaintiff to obtain employment during that year and also impeded
his ability to find employment at all, even in fields beyond its
reach. The plaintiff, who had been employed for a period of
four years, was provided with a 12 month notice period.
One troubling aspect of these decisions is that, at least in
Canada, the reasonableness (and so enforceability) of a
non-competition provision has rarely been tied to whether the
employer agreed to pay the employee during its term. In the
US and UK this is a common practice and is often referred to as a
"garden clause" or putting the employee "on the
beach". In other words, Canadian courts appear less
willing to permit employers to simply pay an employee to remain
unemployed and refrain from competing, but stand ready to diminish
if not eliminate the employee's obligation to mitigate in the
face of a non-competition provision, without reference to whether
the temporal length is reasonable.
These cases highlight the importance of using non-competition
agreements only where reasonably necessary, and ensuring careful
thought is given to their temporal length. Employers should
consider relying instead on a non-solicitation provision. Not only
are courts more willing to enforce these clauses, it also minimizes
the risk of a lengthier notice period being imposed as a result of
a non-competition provision.
Employers who nonetheless have imposed non-competition
agreements on employees, but who decide not to enforce them in a
particular termination, should advise that employee as such clearly
and expressly in the termination letter, or risk unintentionally
putting the employee on the beach.
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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