Restrictive covenants, or non-compete agreements, are tools that employers can use to restrict employees’ employment opportunities when they leave a company. Their purpose is to protect proprietary information and prevent workers from using their knowledge to compete directly with the employer.
Non-compete agreements can be powerful contracts, but only if they are valid and enforceable. As such, it is crucial to know the elements that affect whether a court upholds a non-compete clause.
In Canada, a covenant not to compete must be reasonable for a court to enforce it. The following conditions can make an agreement unreasonable:
- An unreasonably large geographical area in which an individual cannot work
- A time limit that is too long
- Restrictions on employees who have no knowledge of or access to sensitive or confidential information
These components generally make the clause unnecessary, or they create an undue hardship on an employee.
Broad, vague language
For an employee to comply with a covenant not to compete, they must know what they cannot do. Using broad or vague language regarding prohibited activities can make it difficult to follow the rules.
Thus, these contracts can be easier to enforce when they list restricted actions clearly and specifically. Employers would be wise to use precise language in place of subjective phrases such as “reasonable” and specify restrictions like the capacity in which a person can or cannot legally work.
Lack of a legitimate protected interest
Too many employers use non-compete agreements when there is no valid reason to do so. One example of this is when employers request that all workers sign one, even low-wage workers.
This approach can be ineffective, as non-compete agreements prevent former employees from using intimate knowledge about a company to compete with it. Typically, this valuable information is not available to every worker. Thus, having everyone sign an agreement increases the likelihood of parties challenging it.
Whether you are an employer or an employee, you should know whether a non-compete agreement is valid or not. The difference could dramatically affect an individual’s professional opportunities after leaving a company, and the remedies businesses have to protect themselves from competitors.