In the context of employment law, restrictive covenants are defined as contractual provisions included in employment agreements that purport to restrain the employee’s behaviour in some manner post-employment with the entity that is the other party to the contract. Because such provisions, commonly called non-competition or non-solicitation clauses, restrict what an employee can do post-employment, they are known as contractual provisions in restraint of trade. 

Restraint of trade is generally impermissible in Canada, meaning no party can interfere with another party’s ability to earn a living in whatever legal manner they deem fit. The law recognizes an inherent power imbalance in employment relationships, such that the employer always retains significantly more resources and power than the employee. As such, non-competition and non-solicitation covenants are carefully restricted and are only applicable in certain pre-defined circumstances.

In this blog, we explore the concept of restrictive covenants, including defining what they are and the circumstances in which it may be acceptable to include them.

Chef is Enticed to Leave Catering Company to Work for Day Care

The case of Boaden Catering Limited v Earl Haig Community Day Care involved a defendant chef who had worked for the plaintiff catering company as its executive chef until he was induced to leave to begin working for the corporate defendant, a community daycare. The chef was enticed to leave his employment with the plaintiff’s catering company when the defendant’s daycare approached him and asked if he was interested in an executive chef position with the daycare in which the chef would be responsible for creating menus and serving young children.  The chef agreed and provided his notice to the plaintiff catering company.

Catering Company Alleges Chef Breached Restrictive Covenants in Working for Day Care

After his departure, the catering company asserted that the chef violated the restrictive covenants in his employment contract because he was directly competing with the catering company in his new role and soliciting some of the catering company’s clients. As such, the catering company commenced an action against the chef on several grounds, including violating both the non-competition and non-solicitation covenants of his employment contract with the catering company.

Defining and Enforcement of Non-Competition Agreements

Non-competition agreements are a form of restrictive covenant intended to protect the employer from any departing employee who seeks to continue working in the industry in the same geographic area as the former employer is located. Such clauses may be necessary to protect the interests of an employer in a niche market, for example, wherein the loss of a key employee who essentially ran the company would be potentially devastating for an employer, all the more so if the employer goes to work for a direct competitor down the street from the original employer and uses knowledge gleaned from the time with the former employer to enhance the success of the new one.

Generally speaking, restrictive covenants of any kind have been banned in Ontario as patently unenforceable unless the restrictions contained in the covenants are reasonable. Moreover, concerning non-competition covenants specifically, a court will not find a non-competition agreement to be enforceable if a non-solicitation clause is already in place and adequately protects the employer’s interests.

The party seeking to enforce a restrictive covenant bears the onus of proving, on a balance of probabilities (i.e., to a certainty of 51 per cent), that the covenant has been breached.

In the event there is no non-solicitation clause, the reasonability of non-competition clauses is evaluated by the courts based on geography, time and activity; in other words, the court considers whether the restrictions imposed by the non-competition covenant are reasonable in terms of the geographic area, length of time, and types of activities that they purport to restrict. Such clauses must also be expressed in clear and unambiguous language if there is any expectation that they will be upheld.

The Non-Competition Clause in this Case Unreasonable Because of Overreach, Ambiguity

In this case, the court was satisfied that the non-competition clause was unreasonable for several reasons. First and foremost, the clause itself was ambiguous, as it interchangeably referenced “unit” and “regional office,” which was not defined in the contract. 

Moreover, the clause was unreasonable in its temporal and geographic restrictions. The geographic restrictions purported to restrict the chef from working anywhere between the boundaries of London, Peterborough, Owen Sound and Upstate New York, USA. As the plaintiff catering company operated only in the Greater Toronto Area, there was no reason to restrict the chef’s actions beyond the areas where the catering company already operated. Furthermore, the restrictions were expressed in miles, even though Canada is a metric country that uses kilometres to measure distances. The court was satisfied that the use of miles added additional ambiguity to the clause such that, when read as a whole, the entire clause was ambiguous and unreasonable and, therefore, unenforceable as an unreasonable restraint of trade.

Non-Solicitation Agreements: What They Are and When They Are Applicable

Non-solicitation agreements govern departing employees’ ability to solicit the former employer’s clients, agents and employees. Such clauses are intended to protect employers who are, for example, involved in small, niche businesses that would suffer great losses were a key employee to leave, open a directly competing business at lower costs than those offered by the former employer, and lure away all of the former employer’s clients and employees such that the former business fails.

Non-solicitation clauses are a form of restrictive covenant, so the same rules of interpretation apply to non-competition agreements. Therefore, in order for such a clause to be found to be legal and enforceable, it must be reasonable in scope with respect to geography, time, and activity restricted on the part of the employee. 

The Non-Solicitation Clause in this Case is Unreasonable Because of Ambiguity, Overreach

In this case, the court noted that the non-solicitation clause purported to restrict the defendant chef from soliciting, either on his own behalf or that of a new employer, any client or business involved with the plaintiff catering company for 24 months after his employment with the catering company. The geographic area purportedly restricted was a 100-mile radius.

The court was satisfied that the clause was overly broad for time and geography for many of the same reasons delineated regarding the non-competition agreement. It was also ambiguous because it included references to miles instead of kilometres. Given these conclusions, the court was convinced that the clause was unreasonable and unenforceable.

Contact Grosman Gale Fletcher Hopkins Today for Assistance Interpreting Your Employment Contract

If you find yourself in a position wherein you are uncertain how to interpret the provisions of your employment contract or your former employer has sought an injunction against you because of a purported violation of the terms of your employment agreement. Legal assistance can help you navigate the legal maze. Fortunately, Grosman Gale Fletcher Hopkins LLP is here to help.

From our offices in downtown Toronto, Ontario, Grosman Gale Fletcher Hopkins is proud to provide employees from all over Ontario with shrewd, knowledgeable legal advice and guidance to help you navigate the complicated legal system. Contact us online or via telephone at (416) 364-9599, and one of our friendly staff will be pleased to schedule a confidential consultation.