Many employers ask if they can prevent an employee from competing with them or soliciting clients after they leave their employment. There are many reasons that employers will want to do this. Depending on the nature of the industry, an employee’s ability to compete can result in the loss of a large portion of clientele, or it can result in the loss of market share relating to a product. From the employee’s perspective however, they want to be able to fully and freely participate in the labour market. It is not uncommon to include a non-competition or non-solicitation clause in employment agreements to protect the employer. It is important to know that the courts look at such agreements with skepticism and unless the agreement is reasonable between the parties and not adverse to the public interest, it will not be enforced. If the agreement is ambiguous in any regard it will be found to be unreasonable and therefore unenforceable. Courts will not amend the agreement to make it reasonable and therefore enforceable.
There are generally three parts to any non-competition or non-solicitation clause – time, activity and geography. All three must be reasonable between the parties for the agreement to be enforceable. The agreement must be for a reasonable period of time, it must only restrict activities that when considering the relationship between the parties are reasonable and the geographic area that is covered must be reasonable. The restriction should be as narrow as possible to protect the interests of the employer. As an employer, you must be able to justify the restriction as being no more than what is reasonably required to protect your interests. If the clause contains a broader geographic area than is necessary to protect the employer’s interests, it will be found to be unenforceable. If the clause restricts competition for a longer period of time than what is reasonably necessary, it will be unenforceable. If the clause restricts activities that are not reasonably necessary to protect, the clause will be unenforceable. To be enforceable the clause must be well thought out and restrict only what is necessary. Don’t use “boilerplate” language, rather putting thought into the actual requirements of the business is necessary. It is important to specifically identify the interest that needs to be protected and clearly and unambiguously define that in the agreement. The non-competition agreement should:
- Only prevent an employee from becoming engaged in business activities that are the same or similar to the activities the employee was involved in at the time that their employment came to an end.
- Cover a geographic area no broader than the area in which an employer is vulnerable as a result of the employee’s departure. Generally limiting the restriction to the specific geographic area in which an employee actually performed services on behalf of the employer is a best practice.
- Only last as long as is necessary for an employer to regain any competitive advantage that has been lost because of the employee departure. Generally non-competition agreements of 12 month or less are more likely to be enforced.
As important as the drafting of the clause is the way that the clause is presented to the employee. Employers must give employees adequate time to review the clause and seek legal advice before signing. Doing so increases the likelihood that the court will enforce the agreement.
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