It is important to both large corporations and small business to protect their business interests and hold onto clients when purchasing a business, entering into partnerships, or hiring new employees.
For this reason it is very common to put into place agreements that include restrictive covenants, such as non-competition and non-solicitation clauses.
Recent Canadian case law regarding restrictive covenants shows us that courts will often strike down non-competition clauses, finding that they are prima facie unenforceable as they are in restraint of trade and against public policy. It is therefore critical to the success of the business to have a properly drafted agreement, such that it will hold up in court. To this end, Canadian courts are much more inclined to enforce a well drafted non-solicitation clause, as these have been deemed to be reasonable in a wide variety of circumstances. On the other hand, non-competition clauses will for the most part only hold up under commercial business circumstances.
In order for a restrictive covenant to be enforced it must be proven by the party seeking to enforce the agreement that the clause is a reasonable limit on trade. In the case of a non-competition clause, the clause should be limited in time and geographical location, as well as the scope of what constitutes competition. These clauses should be drafted in such a way as to show that there has been consideration given for the commitment not to compete.
In most cases, a non-solicitation clause should be restricted to customers or clients of the employer with whom the key employee dealt and should not include other customers or clients (for example, customers with whom the key employee or partner did not deal with or of which she had no knowledge). Unlike non-competition clauses, there is no geographical area necessary for a non-solicit clause, and periods of up to two years has been found many times by the courts to be reasonable.
The lawyers at Key Murray Law working in the area of Corporate or Employment Law would be happy to answer any questions you may have regarding the drafting of agreements to help ensure that they will not be set aside.
Legal information appearing in this article and elsewhere on Key Murray Law’s website is intended for informational purposes only and is not intended to substitute for or replace any legal or other professional advice. If you have specific concerns or a situation in which you require legal advice, you should consult directly with one of our lawyers.