Having your employees agree to not compete against you after they move on is great for your business. But how easy is it to actually enforce a non-compete clause when you believe a former employee is breaching it?
In Manitoba, our Court of Appeal clarified earlier this year that your non-compete clause is going to be highly scrutinized at the early stages of litigation if you are pursuing a Court order to stop the competition while you wait for the litigation process to progress to a trial. This means your non-compete could be sunk before it sets sail.
Non-Competes Presumed to be Unreasonable / Unenforceable
Non-competes have a tough road ahead of them if they are to be enforced.
The law has long confirmed that non-compete clauses, like other post-employment restrictions on employees that curb their ability to make a living, are presumed to be unenforceable unless proven to be reasonable in the circumstances by the employers trying to enforce them.
There are all sorts of ways that a non-compete may be considered unreasonable: its language is vague or uncertain; it goes further than it needs to in respect of its duration and/or geography; or the employer has not established a proprietary interest warranting protection afforded by a non-compete.
Enforcing Non-Competes by Injunction and the Mansbridge Case
Usually, the first step to enforce a non-compete is to sue and plead with the court that it ought to order the ex-employee to stop competing immediately while the litigation process unfolds for the next several months or years (i.e. an injunction motion).
If your injunction motion succeeds, it should stop the bleeding since (hopefully) the ex-employee will stop breaching the non-compete in fear of breaching a court order.
There has been some uncertainty about the level of scrutiny the court would evaluate non-competes to determine their enforceability at this early stage of the court process. One being a "serious issue to be tried" that involves less scrutiny than the other standard, being a "strong prima facie case."
For employers looking for an early court order that prevents competition with awaiting trial, less scrutiny of the non-compete increases the chances of successfully getting that early court order while awaiting a full trial in the future.
However, the Manitoba Court of Appeal in Mansbridge cleared up the uncertainty last year by confirming that the more stringent "strong prima facie case" standard is to be applied in an employment law context.
Make Your Non-Competes Competitive
Why is this important to employers?
At the very early stages of litigation, the Court will review the non-compete clause in great detail to consider whether it is actually reasonable and, so, enforceable. The ex-employee (or their lawyer) can take the opportunity to pick apart every aspect of the clause in hopes that the Court agrees with any criticism of it, rendering it entirely unenforceable.
The arguments by employee-counsel are easy to predict: the description of the business in which the ex-employee cannot engage in is unclear; the geographic scope is vague or, even if clear, goes further than necessary; a non-solicit clause would have been sufficient to protect the employer's interest and so the non-compete is overkill.
A carefully thought out non-compete clause, precisely drafted in anticipation of those kinds of arguments, will help increase the chances that the clause will withstand this higher degree of scrutiny during the early stages of litigation.
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.