Employment contracts often include restrictions on employees after they have departed employment. These terms are designed to favour the employer upon an employee’s departure regardless of the reason(s) surrounding the release.
Sometimes these clauses are drafted in a way that they are vague, unreasonable or seek to overreach, which usually results in such terms being struck down or held unenforceable in court. Strong legal precedents support claims to have a contract deemed void or unenforceable.
In October 2021, the Ontario Government passed legislation making almost all non-competition clauses and provisions illegal. This is an excellent means to challenge the enforceability of such restrictive clauses for departing employees. Whether such restrictive terms in a contract are valid and legally enforceable depends on a close review of the contract and the restrictions imposed, together with a detailed study of the background facts.
Restrictive Covenants
Lawyers, often refer to restrictions placed on a departing executive or employee’s ability to work elsewhere in terms of “restrictive covenants”: restrictions imposed on a departing employee through their existing contract of employment. The term “covenant” refers to a contractual term in the contract.
There are several key types of restrictive covenants or contractual obligations imposed on departing employees:
Non-Compete Clauses
Non-competition or non-compete clauses and provisions are terms in a contract designed to restrict a departing employee from going to work for a competitor or starting up a rival business.
Over the years, the courts have taken a narrow approach and made it very difficult for employers to enforce these provisions by imposing a strict policy for interpreting the scope, geographic area involved and the duration of such provisions. The courts have been concerned, quite rightly, about restricting an employee’s ability to compete or go to work else in the same industry after their termination, with another employer or elsewhere. The ability to earn an income is fundamental to every employee.
More recently, there has been a strong push throughout the world and, in particular, in the United States to abolish these types of restrictions and the severe impact they have on an employee’s right and ability to earn a living in their area of work/profession. Ontario has recently imposed legislation making these types of restrictions illegal for almost all classes of employees and executives.
Over the years, it has become harder and harder to enforce non-competition clauses and provisions, a good thing for employees and executives.
Employers with the possibility of a departing employee competing against them usually seek to prevent this by first suing the employee or group of employees and then bringing a motion for injunctive relief. An injunction, if properly commenced, can usually be heard within days or weeks. The tactical advantage for an employer is significant; you can have your case heard within days or weeks as compared to the main action may take years to sort through the court process, while an employee is free to compete until the act is concluded after a trial.
Non-Solicitation Clauses
Non-solicitation clauses and provisions are contractual terms in a contract to prevent a departing employee from taking active steps to encourage, entice or poach current employees to leave employment to compete against the current employer.
While the restriction is on the departing employee, there are generally no restrictions placed on other employees to approach the departed employee about joining together to compete against the current employer. You can’t ask employees to join you, but these same employees can approach you about coming to join you.
These cases tend to be very fact specific and usually turn on an analysis of who approached who and when. Not surprisingly, email, text messages and phone records are critical to the outcome. Sophisticated legal counsel can assist employees wishing to depart and compete with others by ensuring a proper and complete factual record to achieve the desired goal.
Confidentiality Clauses
Confidentiality clauses and provisions in a contract seek to protect an employer’s interest in what is confidential and not otherwise within the public domain from being used for an improper purpose. But not everything is confidential.
The courts will intervene where the facts warrant it, such as the taking of a secret formula to produce a unique product or in terms of trade secrets.
However, more confidentiality provisions are being struck down in the courts due to poor drafting, which seeks to over-reach or where the courts believe the provision amounts to an unreasonable provision. Ontario courts will often interpret vague and ambiguous requirements against the party who drafted it, usually the employer (or legal counsel acting as an agent for the employer). The law in this area is in a serious state of flux and is changing daily. One case recently stuck down and held the termination provisions of an employment contract to be unenforceable due to a poorly and inappropriately drafted confidentiality clause.
Privacy Rights
Again, employers may seek to restrict what a departing employee can do with information which amounts to and impacts privacy rights. These types of rights usually relate to individuals’ private information. A departing employee who has access to an employee’s private information and then uses it for an improper purpose may well become embroiled in a legal dispute with the former employer, who was the gatekeeper of the private information.
In Ontario, there is currently limited legislation dealing with privacy rights in employment. There is an exception for medical information, however. Federal legislation known as the Personal Information Protection and Electronic Documents Act (PIPEDA) may be relevant. Other federal legislation may also come into play regarding privacy rights.
These cases usually involve employer-supplied cell phones and laptops and the extent to which an employee retains a privacy interest. Efforts by an employer to track an employee’s location or “ping” them through their cell phone are currently unclear but likely not to survive a serious court challenge. The case law relating to privacy rights and the ability of an employer to use otherwise private information relating to an employee is developing but moving in the right direction in restricting and limiting what an employer can access and use against an employee. Each case, however, turns on its own facts.
Restrictive Covenants Lawyer
If you need a non-compete lawyer to help with any form of restrictive covenant, contact John Evans.
With 30 years of experience as a practising litigation/employment/labour lawyer, John is focused on achieving the very best results for his clients. He has fine-tuned his skills and mastered the art of persuasion. With his stellar reputation, John holds the respect of the lawyers he acts against. Smart, tactical and a particularly quick study, John is committed to exceeding his clients’ expectations.
Contact Evans Law Firm
Contact Evans Law Firm today for a free no-obligation consultation with a non-compete lawyer. Sometimes time limits can bar an otherwise good claim from being advanced. Please don’t delay and contact us as soon as possible. There is no cost until John is formally retained and a written retainer agreement is in place.