The BC Court of Appeal has ruled that a clause requiring a former employee to pay her former employer a prescribed amount for setting up her own business within a certain geographic location was, in fact, an enforceable non-compete clause.

The Creston Veterinary Clinic entered into an employment agreement with an associate. The contract contained a clause that would require the associate to pay a prescribed amount if she established a veterinary clinic within a 25 mile radius of Creston, British Columbia. After leaving her employment with the Clinic, the associate brought an action in Supreme Court, seeking to have the clause declared unenforceable.

The clinic argued that the clause did not constitute a restraint of trade as the associate was not barred from setting up a competing veterinary clinic, and, in the alternative, the clause was a reasonable and enforceable non-compete clause. The Court noted there was conflicting authority on whether or not this type of clause constitutes a restraint of trade. However, the Court held that a clause would be found to restrain trade where it created a financial disincentive that a former employee would not otherwise face for engaging in post-employment competition.

As a result, the clause constituted a restraint of trade. To determine whether the clause was enforceable, the Court considered the traditional criteria applied to non-compete clauses: does the clause protect a legitimate proprietary interest; is the restraint reasonable in temporal length, geographic area, nature of activities prohibited and overall fairness; were the terms of the restraint clear; and was the restraint reasonable in terms of public interest. Applying these criteria, the Court issued a split decision with the majority finding that the clause was enforceable.

Rhenbergen v. Creston Veterinary Clinic Ltd., 2014 BCCA 97