Is it a non-compete or non-solicitation clause?
In order to understand what your rights are, you need to first determine what kind of clause you are dealing with. Non-compete and non-solicitation clauses are legally quite different, though we often use them interchangeably in common parlance.
A non-compete clause is a clause that prevents an employee from competing with their former employer (such as by working for a competitor) after leaving their employment. For example, if you work at a hair salon, you may be competing with your former employer if you take a position at a neighbouring salon. Don’t worry though—there is nothing wrong with this unless your employment contract explicitly prevents you from doing so through an enforceable non-compete clause.
A non-solicitation clause is a clause that prevents an employee from taking away clients or employees of their former employer after leaving their employment. For example, if you quit your job at the hair salon and upon leaving, you phone a number of the salon’s clients and encourage them to go to your new salon, you are “soliciting” your former employer’s business.
In the legal world, we refer to both non-compete and non-solicitation clauses as “restrictive covenants”, because they restrict your rights through contract.
Once you’ve established what kind of clause you are dealing with, you must then determine whether or not the clause is enforceable. There are two general reasons why it might not be: first, it may not be part of your employment contract. Second, even if it is part of your contract, a court may refuse to enforce it if it determines it is unreasonable.
Is the restrictive covenant actually part of my employment contract?
Unless you are a fiduciary employee, you do not need to worry about restrictive covenants unless they are expressly included in your employment contract. That said, even if your employer had you sign a document that included a non-compete or non-solicit clause, it may be “void for lack of consideration.” In order for a contract to be valid, there must be some form of consideration (such as money) that flows from one party to the other in exchange for something else (such as performing your job). Generally speaking, consideration for an employment contract is the job and salary itself. However, if you signed a non-compete or non-solicitation provision after you had already started your position, your employer must give you something extra, such as a raise or bonus, for agreeing to those additional terms.
This means that if the restrictive covenant was introduced after the original employment contract was already signed, the employer must offer something in return. Otherwise, the new terms are void for lack of consideration. However, consideration does not need to be much. A raise of just one dollar could be considered sufficient.
If it is part of my employment contract, will the courts enforce it?
The court’s starting assumption is that restrictive covenants are void unless the employer is able to show otherwise. This is because courts are mindful of the inherent power imbalance between employers and employees and because of public policy reasons. Because non-compete clauses are much more restrictive than non-solicitation clauses, courts are more reluctant to enforce them and more likely to find them unenforceable.
However, a court will enforce a “reasonable” restrictive covenant. The court will consider the following guidelines to determine whether or not the clause is reasonable:
- The clause must be reasonably necessary to protect the “legitimate property interests” of the former employer (i.e. things that belong to the former employer such as confidential information/trade secrets, customers/trade connections and current employees);
- The courts will not enforce a non-compete clause if a non-solicitation clause would have been enough to protect the Employer’s “legitimate property interests”;
- Any limits on where geographically, how long, and what activities the restrictive covenant applies to must be clear and reasonable. For example, a restrictive covenant that applies only to the College-Bathurst area of Toronto, Ontario, and lasts for six months, is much more likely to be upheld as reasonable than a restrictive covenant that lasts for years and is not limited to a specific geographic area.
Unfortunately, there is no hard and fast rule that tells you whether or not the restrictive covenant found in your contract will be enforceable. If you have specific questions about your contract, or if you would like to speak with one of our lawyers for more information, please contact us by phone or email, or request a consultation by clicking HERE.
*Special thanks to summer student Henry Goddard-Rebstein for their assistance in drafting this post.