Employers regularly use restrictive covenants in their employment contracts to minimize the harm that can be inflicted by former employees upon departure. The most common restrictive covenants are noncompetition clauses (which restrict former employees from competing with former employers for a certain period of time) and non-solicitation clauses (which restrict former employees from soliciting customers, employees or suppliers of the former employer for a certain period of time).
Canadian courts have long held that restrictive covenants are a restraint of trade and contrary to public policy. As a restrictive covenant is presumed void, such clauses will only be upheld if they are drafted narrowly and go no further than necessary to protect the employer’s legitimate business interests. This includes the use of reasonable limits in terms of duration and scope (geographic, etc.), amongst other factors. For this reason, a non-competition clause will only be enforced in rare circumstances.
Properly drafted non-solicitation clauses are a useful tool for employers and are much more commonly upheld by the courts. It is still important to ensure that a non-solicitation clause is sufficiently narrow and does not accidentally move into non-competition territory, however, as the Ontario Court of Appeal case, Donaldson Travel Inc. v. Murphy, 2016 ONCA 649, illustrates.
In this case, the non-solicitation clause at issue stated that the employee:
…agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by the employee], directly or indirectly. [emphasis added]
The Court of Appeal upheld that the phrase “or accept business” turned the non-solicitation clause into a non-competition clause and was unreasonable and unenforceable.
This decision serves as an important reminder that overbroad restrictive covenants will not be upheld by the courts. If you wish to use such clauses in your employment contracts it is important to have such clauses vetted by legal counsel beforehand.