Employment Restrictions in Your Employment Contract

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 is vague, unreasonable, or seeks to overreach, which usually results in such terms being struck down or held unenforceable in court.

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.

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 restrictions, 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 elsewhere in the same industry after their termination. Over the years, it has become harder and harder to enforce non-competition clauses and provisions, which is a good thing for employees and executives.

More recently, there has been a strong push 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. In October 2021, the Ontario Government passed legislation prohibiting employers from entering into employment contracts or other agreements with an employee that is, or that includes, a non-compete agreement, with a limited exception permitting such agreements for certain executive employees. 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.

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 whereas the main action may take years to sort through the court process.

Non-Solicitation Clauses

Non-solicitation clauses and provisions are contractual terms in a contract designed to prevent a departing employee from taking active steps to encourage, entice, or poach current employees to leave employment and compete against their current employer, or current clients or customers of the employer to take their business elsewhere.

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 departing employees 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 improperly. 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 otherwise using 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 is otherwise unreasonable. Ontario courts will often interpret vague and ambiguous requirements against the party who drafted it, usually the employer. The law in this area is in a serious state of flux and is changing daily.

Privacy Rights

Again, employers may seek to restrict what a departing employee can do with information which amounts to and impacts privacy rights. 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. 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 lawyer to help with any form of restrictive covenant, Contact Evans Law Firm today for a free no-obligation consultation. 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 we are formally retained and a written retainer agreement is in place.