Jump to Navigation

Striking the right balance with non-compete clauses

Restrictive covenants, such as non-compete and non-solicitation clauses, have become increasingly common among Canadian businesses in recent years, as the Globe and Mail reports. Non-competition clauses, specifically, are now an important element of many employment contracts in both British Columbia and throughout the country. Employers, however, need to be aware that non-compete clauses can be challenged in court. To help increase the chances that such a clause will be legally enforceable, it is necessary to strike the right balance between the rights of both employers and employees.

The purpose of non-compete clauses

In a knowledge-based economy, non-compete clauses play an essential role in ensuring that businesses remain profitable. A software engineer, for example, may have access to a company's confidential software code. If that software engineer was to take that code to a competing business then that competing business would gain an unfair advantage over the engineer's original employer. Likewise, employees who are in executive positions often have access to sensitive information about the company they work for. Without non-compete clauses, that information could end up in the hands of a competitor who is willing to offer the executive higher compensation in exchange for such sensitive information. Essentially, non-compete clauses ensure businesses can operate in a fair environment.

Restrictions on employees

At the same time, non-compete clauses cannot be so restrictive that they prevent an employee from progressing in a career that he or she has trained and worked in. As the Financial Post notes, Canadian courts tend not to look favourably on non-compete clauses that essentially try to stymie a former employee's career prospects. For example, if a non-compete clause places an unreasonably long time period during which a former employee cannot work for any competitor within a certain geographical area, then the chances of that clause being upheld in court may be slim. Essentially, Canadian courts are more likely to uphold a non-compete clause if the clause is unambiguous and its restrictions are reasonable for ensuring that a former employee does not give a competing business an unfair advantage.

Employment contract law

A well-drafted employment contract is an essential document for almost all businesses in Canada. An employment contract that can easily be struck down by a judge could, in the long run, expose a business to serious financial risks that could jeopardize its long-term profitability. Creating a legally enforceable contract requires consulting with a lawyer who is well versed in contract law and who is up to date on recent trends in business litigation. An experienced employment contract lawyer can assist employers who are looking to draft an employment contract that stands the best chance of being held up in court and thus of also protecting the business' long-term viability.