Ridout Barron


Are non-compete clauses enforceable in Canada?

It is not uncommon for employers to request their employees to sign a non-compete clause, which might be included in an employment contract, before they start working. The question is, are non-compete clauses enforceable in Canada? The answer is yes, but enforcement can be a challenge in many cases.

Before we begin to answer this question it is important to understand why employers use non-compete clauses. Generally, the reason is because customers will often develop close ties with employees and if that employee leaves the company, customers will want to follow him or her. While it is perfectly understandable that a business would want to try and protect its income stream in this fashion, it is also important to realize that courts do not always favor employers in non-compete clause disagreements.

An attorney commenting on this issue cites a 1992 case out of Ontario as an example. In this case, a salesperson was hired by a chemical company in Michigan to sell products globally. The individual signed a contract saying that he would not do business with the company's clients for a year after ended his employment with the company. Technically, the man had signed a "restrictive covenant" that put him in a difficult situation that would inhibit his ability to earn a living. It is not uncommon for courts to scrutinize these kinds of contracts.

Ultimately, the chemical company salesman was dismissed from employment after 17 years. He then filed a wrongful termination suit and sought to have his non-compete clause invalidated. Ultimately, an appeals court decided that even though the man had voluntarily entered the non-compete agreement, it was not legally binding or enforceable. The court decided: 1) that it was inappropriate to prohibit the man from competing with Chem-Trend completely; 2) that the man was not a senior employee so the non-compete should not apply to him.

This case highlights how sensitive non-compete clause disagreements can be -- especially for employers. Therefore, it is vital to analyze the particulars of the situation before moving forward with a lawsuit to try and enforce the matter, so that a suitable legal strategy can be created.

Source: The Globe and Mail, "Can my employer force me to sign a non-compete clause?," Daniel A. Lublin, accessed Dec. 04, 2015

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