How to Enforce Non-Compete Clauses in Canadian Contracts
Non-compete clauses have gained wide application in employment contracts especially for senior employees, contractors and specialized workers. The non-compete clause basically bars an employee from using confidential business information against an employer should the employee join the employ of a competitor firm or embark on a similar business upon leaving. As much as non-compete clauses provide the necessary protection to employers they are barely easy to enforce. Canadian courts have tried to balance the scales between employers and employees in terms of how such clauses in employment contracts do not exceed reasonable limits with regard to scope and time. This article will outline how best non-compete clauses can be enforced under Canadian employment law.
Understanding the Basics of Non-Compete Clauses
A non-compete agreement is a type of agreement whereby, on termination, an employee will not work with the competitors or conduct a similar business for a specified period of time and within a specified region. These are proposed so that the proprietary information and customer relationship relating to the business interest can be protected. However, to be enforceable in Canada it should be reasonable and necessary to protect the legitimate interests of the employer but not unduly prejudice the interest of the employee in being gainfully employed.
Enforceability of Non-Compete Clauses in Canada
Non-compete clauses are not that enforceable in Canada. The Court has to review the reasonableness of the clause regarding time, area, and activity it covers. Too broad or too narrow clauses may be struck down. A clause not to work for the whole of Canada for five years may be held to be excessive. It should be no more than is necessary to safeguard the business interests of the employer. Most employers consult with an employment attorney to make sure the clause is valid and if it needs revision.
When to Consult a Lawyer
These could include non-compete agreements that can be reviewed upon the employees leaving and challenging such agreements with the assistance of an employment attorney. The attorney will be able to advise whether such a clause is reasonable and justified based on recent law. Should the dispute proceed to litigation, then the attorney will be able to negotiate or represent your interests in court. It is better to have an employment lawyer right from the drafting stage of this kind of document so that one can avoid signing unenforceable agreements in the future.
Critical Issues for Employers
Employers should ensure that agreements of non-compete are narrowly drafted to protect specific business interests, such as trade secrets or client relationships, without being unduly restrictive. Both parties are supposed to sign the clause upon hiring or whenever changes are made in the contract. This should be spelled out clearly in order to avoid further misunderstandings or disputes.
How an NDA Factors In
Many employers connect NDAs with non-compete agreements. While a non-compete bars workers from working for direct competitors, an NDA protects the proprietary information of the business. Generally speaking, it is easier to enforce NDAs because they don't limit commerce, unlike those non-compete clauses most likely create hot disputes on unreasonableness. A properly drafted NDA is generally more enforceable
The Impact of Evolving Employment Laws
The Canadian courts have more recently attempted to restrict the scope of non-competition covenants, particularly in cases where such a covenant unreasonably restricts an employee's future prospects of employment. An employer must keep himself abreast of changes in legislation and case law which may render illegal their own agreements containing non-competition covenants. Less litigation and a better possibility of enforcing these covenants will result from periodic revisions to employment contracts.
The non-compete clauses of Canada need to achieve a balance between the needs of employers and the rights of employees. Inasmuch as such clauses are meant to protect businesses, their duration, geography, and scope must be reasonable. It is expected that employers will draft these clauses with due care to avoid overreach in combination with NDAs for increased protection of information. With the emerging changes in the labor laws, it is advisable for the employers to seek legal advice to safeguard their interests but at the same time be fair and observe the law.
