Reasonalble time periods for non-competition and non-solicitation clauses
Question: What would be a reasonable time period for a non-competition or non-solicitation clause? If an employee agrees to and signs such an agreement, can it still be ruled unenforceable?
Answer: The enforceability of a restrictive covenant depends on many factors, including the wording of the clause, the position of the employee and the legitimate interests of the employer.
A restrictive covenant is a term in an employment contract that expressly limits post-employment activities. The broadest type of restrictive covenant is a non-competition clause — it prohibits an employee from competing with her former employer within a certain geographic area and time period. A non-solicitation clause, on the other hand, prevents an employee from soliciting her former employer’s clients for a specified period, but does not place restrictions on where she may work.
Where an employer seeks to enforce a restrictive covenant, the court will attempt to balance the legitimate interests of the employer, the interests of the former employee in pursuing her livelihood and the interest of the public in having access to a broad range of services.
In balancing these interests, the court will ensure the former employee’s rights are restricted no more than necessary to protect the employer’s legitimate business interests.
Restrictive covenants have been found by the courts to be “in restraint of trade” and therefore prima facie unenforceable. To enforce a restrictive covenant, an employer must be able to prove the provision is necessary to protect a legitimate proprietary interest; the restraint is reasonable as between the parties in terms of its duration, geographic scope, the nature of the activities prohibited and overall fairness; the terms of the restraint are clear and certain; and the clause is reasonable in terms of the public interest.
If the employer is unable to prove all these elements, the court can strike down the covenant even if it is contained in an employment agreement that has been signed by the employee.
The reasonableness of the time period is dependent on the specific circumstances of each case. An employer may have difficulty enforcing a covenant that restricts post-employment activities for more than 12 months, absent special circumstances. For example, in Rhebergen v. Creston Veterinary Clinic Ltd., the British Columbia Supreme Court found that a restrictive covenant that limited a veterinarian’s activities for a three-year period post-employment was “too long,” noting the application of the clause to the veterinarian’s circumstances would have resulted in restraint for more than 2.5 times the duration of her employment. In some cases, even periods shorter than 12 months will be considered excessive. In Travel Co. v. Keeling, for example, an eight-month restraint for an entry-level employee was struck down as unreasonable.
A 12-month restriction on an insurance broker, although struck down for other reasons, was found to be reasonable in length in Hub International (Richmond Auto Mall) Ltd. v. Mendham. A six-month restriction on a senior advertising consultant was upheld in Rawlco Radio Ltd. v. Lozinski. In that case, the employee was the face of the company and had significant contacts with the clientele. As a result, the court was satisfied the proprietary interest of the employer required protection.
Any restrictive covenants should be carefully and precisely drafted. The duration of the clause should be only as long as is necessary to protect the employer’s legitimate interests.
For more information see:
• Rhebergen v. Creston Veterinary Clinic Ltd., 2013 CarswellBC 169 (B.C. S.C.).
• Travel Co. v. Keeling, 2009 CarswellAlta 1057 (Alta. Q.B.).
• Hub International (Richmond Auto Mall) Ltd. v. Mendham, 2011 CarswellBC 3672 (B.C. S.C.).
• Rawlco Radio Ltd. v. Lozinski, 2012 CarswellSask 786 (Sask. Q.B.).
