A non-compete is a “restrictive covenant”.
What is a restrictive covenant?
In employment contracts, restrictive covenants are clauses that stop employees from doing specific things. Examples of restrictive covenants are:
-
- Confidentiality clauses – stop employees from sharing confidential information.
- Non-competition (non-compete) clauses – stop employees from working in competing businesses.
- Non-solicitation clauses – stop employees from taking clients or other employees with them when they change jobs.
Are restrictive covenants enforceable?
Courts do not like to stop employees from working, but also recognize that employers need to be able to protect their business. Courts will enforce “reasonable” restrictive covenants that go “no further than necessary” to protect the employers’ interests.
What does “reasonable” and “no further than necessary” mean?
When deciding whether to enforce a restrictive covenant or not, the court will consider whether it is limited in time, geography and scope. The Court will also consider whether the terms are clear, certain, unambiguous, overly broad or against the public interest. The clearer, narrower and less restrictive the restrictive covenant is, the more likely it is to be upheld.
Will the court fix a poorly drafted clause?
Generally if any part of the restrictive covenant is defective or unreasonable, the whole clause fails.
Case Study
In the case of IRIS The Visual Group Western Canada Inc. v. Park 2017 BCCA 301, Dr. Park provided contract optometrist services to Iris. Dr. Park’s agreement with Iris contained a non-competition clause that was meant to stop her from working in a competing business within 5 km of Iris. Dr. Park stopped providing services to Iris and set up her own optometrist practice 3.5 km away. Iris sued Dr. Park to enforce the non-competition clause.
The non-competition clause read:
- NON-COMPETITION
7.1 The Optometrist hereby covenants and agrees that during the term of this Agreement and for a period of three (3) years from the date this Agreement is terminated the Optometrist will not, without first receiving the written consent of OpCo and IRIS do any of the following:
(a) Compete either directly or in partnership or in conjunction with any person or persons, firm, association, syndicate, company or corporation, directly or indirectly carry on or be engaged in any part thereof or be employed by any such person or persons, company or corporation carrying on, engaged in, interested in or concerned with a business that competes with OpCo or IRIS within 5 km of the Location. For greater clarity, a “business that competes with OpCo or IRIS” is defined as any entity that dispenses performs [sic] any sort or [sic] prescription or non-prescription optical appliances including eye glasses or sunglasses, vision correcting lenses and contact lenses, or is an optical retail dispensary, optometry clinic, an ophthalmology clinic, or any laser eye surgery centre and/or any location that performs optical refractions and/or complete or partial eye examinations or eye health assessments,
(b) disclose to any person, firm or corporation any information concerning the business or affairs of OpCo or IRIS at the Location, including, without limitation, the customer list for the Business.
(c) solicit, interfere with or endeavor to entice away any customer, patient, company or organization that is in the habit of dealing with OpCo or IRIS or to interfere with or endeavour to entice away any of OpCo or IRIS’s employees or optometrists.
The Court found the clause to be unenforceable and refused to fix it. Amongst other criticisms, the Court said that the clause was overly broad, ambiguous and went further than was necessary to protect Iris interests.
Takeaway
Restrictive covenants need to be drafted carefully, clearly and narrowly or they will not be enforceable.
Need help with a restrictive covenant? Give our team a call.
This blog is not intended to serve as legal advice, and only provides general information. Every situation must be considered on its own facts. Need legal advice? Contact us by phone at 604 535-7063 or email [email protected].
