How likely is a court to uphold a non-compete clause?

This article looks at non-compete clauses and how enforceable they are in Canadian courts.

In an age when knowledge and information are so important to a business’ interests, it is not surprising that many companies today are asking their employees to agree to non-compete clauses included in their employment contracts. In fact, in recent years employment litigation related to non-compete clauses has increased substantially. However, as the Financial Post reports, while non-compete clauses may be popular, they can be difficult to uphold in Canadian courts. As discussed below, the likelihood of a non-compete clause being upheld largely depends on how restrictive and reasonable that clause is.

Rise of non-compete clauses

As the Globe and Mail points out, non-compete clauses are especially common for employees who hold executive positions. Such clauses are designed to protect trade secrets and ensure that confidential company information does not unfairly end up in the hands of competitors. Non-compete clauses, however, are not limited to executives, with other employees, such as engineers, salespeople, and even fast-food cooks sometimes being asked to sign them.

Balancing conflicting demands

Canadian courts have tried to balance the demands of both employers and employees when ruling on non-compete clauses. While courts recognize that businesses need to protect their secrets, they also recognize that a non-compete clause should not prevent an employee from working in an industry in which he or she has gained experience.

In order to be upheld in court, non-compete clauses typically need to avoid broad and vague language. In 2009, for example, the Supreme Court of Canada ruled that non-compete clauses were unenforceable if they included ambiguous terms. Generally speaking, the more specific the language of a non-compete clause is, the better chance it has of being upheld by a judge.

Additionally, the terms made by a non-compete clause must be reasonable. Non-compete clauses that restrict an employee from working for a competitor or within a certain industry for more than a year, for example, will often be looked on with suspicion by Canadian courts. Also, while junior-level employees may be asked to sign non-compete clauses, such clauses have a much better chance of being upheld in court if they are restricted to high-level employees who actually have access to valuable information and trade secrets.

Employment litigation

As the above article demonstrates, non-compete clauses are an issue that frequently give rise to employment disputes. Resolving such disputes often requires the help of a qualified and experienced employment litigation lawyer. Such a lawyer can help clients understand what their options are in an employment dispute and what steps are most likely to lead to a timely and satisfactory resolution.