What is a Non-Compete Clause?

A non-compete clause (also known as a “restrictive covenant) is a clause where one party (usually an employee) agrees not to enter, start or trade in competition against another party (usually an employer).   

As opposed to the sale of a business, the courts look at non-compete clauses differently in an employment agreement as they are less likely to uphold an onerous non-compete clause. A non-competition clause must be reasonable with respect to time, geographic area, and nature of activities restricted.

Examples of Unreasonableness in Non-Compete Clauses

• Time: An agreement that prohibited an employee from competing anywhere in the world for five years after leaving was found to be unreasonable (Napier Environmental Technologies Inc. v. Vitomir).
• Geography: A former employee set up a business within the 2-mile radius prohibited in the restrictive covenant, the BC Supreme Court found that the breach was not significant and that the former employee’s business was in a different catchment area (Raymond Salons Ltd. v. Janmohamed).
• Nature of activities restricted: Blanket restraints on the freedom to compete are generally held unenforceable (Elsley Estates v. J.G. Collins Insurance Agencies Ltd.).

The non-compete clause has to protect a legitimate proprietary interest of the employer, and be fair and reasonable given the circumstances.  Therefore, a non-compete clause that precludes an employee from soliciting any customers “he has dealt with during his employment in the company” would be unreasonable (Jordan v. Pacific Sign Group Inc.).

The onus is on the employer to prove its reasonableness.

How Winright Law Can Help

For business owners, we can consult and help you draft non-compete clauses. Even small businesses and start-ups should consider non-compete clauses.

If you already have one drafted up and suspect a former employee is in violation of it, we can help you draft a demand letter. Contact us to speak to a legal representative today!