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Watch for these 3 red flags in restrictive covenant agreements

On Behalf of | Nov 30, 2022 | Employment Law |

There can be a great deal on the line when it comes to the relationship between employers and departing employees. Should things end on a negative note or the employee plans to work for a competitor, there can be concerns that they will misuse sensitive, proprietary information.

To ward off these concerns, employers may choose to have employees sign restrictive covenant agreements, whether at the outset, during, or after the end of the employment relationship. However, certain red flags associated with these documents should give people pause before signing or enforcing them.

No time to review it with legal counsel

Restrictive covenant agreements are legal documents. They can be dense, confusing and full of legalese that the average person may need help understanding. Thus, employers and employees would be wise to consult a lawyer to help them review it.

Reviewing an agreement before signing can take time, but if this does not happen, parties could wind up signing something they don’t understand, or relying on the terms of an agreement for protection that may not ultimately be enforceable. 

Terms are unreasonable

When reviewing documents that include restrictive covenants, be especially wary of any with unreasonable terms. The courts will carefully scrutinize the duration, scope, and geography of restrictive covenants against the context of the employment relationship.

Employees should consider obtaining legal advice before agreeing or attempting to negotiate the terms of restrictive covenants, to ensure that they are not agreeing to terms that will be difficult to comply with. On the other hand, courts will refuse to enforce unreasonable or overreaching agreements, so employers should be wary of proposing terms that are extremely broad because those terms will not offer any real protection if they are found to be unenforceable.

It seems unnecessary

These types of agreements are becoming increasingly common across Canada. However, the fact is that not everyone needs one. 

Keep in mind that to be enforceable and valuable, restrictive covenants must protect a legitimate business interest. If an employee does not have access to information or company resources that could pose a realistic threat to the business if improperly used, restrictive covenants are likely to be unnecessary. Reserving them for key employees and executives can be most effective.

Further, attempting to limit the future employment options of every worker can cost a business an incredible amount of resources given the fact-specific nature of the legal analysis of restrictive covenants. When companies focus these efforts on agreements with employees who are actually capable of harming a business by leaving it, they can better utilize their time and money.

Watching out for these issues in employment contracts can help employers and employees avoid the legal complications resulting from them. Whether you are an employee or an employer considering the use of restrictive covenants, we encourage you to reach out to one of our lawyers who are experienced in advising parties on the terms of restrictive covenants.



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