Restrictions must be reasonable to be enforceable
Question: Are there recognized limits to geographic areas and time periods that can be specified in non-compete agreements to keep such agreements reasonable and enforceable?
Answer: There are no “hard and fast” rules with respect to duration and geographic scope which will automatically render a restrictive covenant enforceable. Employers need to remember that these restrictions will only be enforceable where there is a legitimate business interest to be protected, and the terms and scope are reasonable.
Employers must keep in mind that as a starting point, non-competition provisions are prima facie unenforceable. They will only be enforced where lesser restrictions, such as non-solicitation covenants, will not adequately protect the employer — such as where clients follow the former employee, even if she does not solicit them.
Even if a court is prepared to accept that a non-competition covenant is reasonably necessary, the terms of the covenant will have to be reasonable as well or it will not be enforceable. The primary terms to consider will be the time during which the individual is restricted, the geographic scope, and the nature of the business activities covered. Courts will assess these terms to ensure that they are the least restrictive covenants necessary.
There will be cases where long-term or geographically broad non-competition provisions will be enforceable, so long as the employer is able to rationally connect the restrictions to a legitimate business interest. For example, in a recent decision out of British Columbia, IRIS The Visual Group Western Canada Inc. v. Park, the court had to assess the scope of a non-competition agreement between the employer and its former employee, Dr. Park. The employer sued Dr. Park after she opened a competing optometry practice in breach of a non-competition provision which prohibited Dr. Park from competing with the employer within five kilometres of its location for a period of three years.
The court found that both the temporal and geographic restrictions of the non-competition provision were reasonable. The employer was able to provide evidence that the restriction of three years was rationally connected to the length of time required to recruit and train a new optometrist. Similarly, the court found that the employer had a legitimate interest in protecting its client base around its location, and that the five-kilometre restriction did not “go beyond what (was) necessary” to do so. However, the court struck down the non-competition provision, finding that the scope of activities prohibited was far too broad.
When drafting a non-competition clause, an employer should always consider whether it can demonstrate that its interests cannot be sufficiently protected by a less restrictive clause, such as a non-solicitation covenant. If it could be, then a non-solicitation clause should be used instead. Practically speaking, it is prudent to include both, so that the non-solicitation clause will be in place if the non-competition clause is struck out.
Ultimately, courts will not “fix” restrictive covenants that are overly ambitious or restrictive. We routinely advise our corporate clients that if they ask for too much, they will get nothing — for example, if a clause restricts the individual for two years, and a court deems six months to be appropriate, they will not reduce it to six months. Rather, the clause will be struck out in its entirety. As the Rolling Stones said, “you can’t always get what you want, but you get what you need.”
For more information see:
•IRIS The Visual Group Western Canada Inc. v. Park, 2016 CarswellBC 3115 (B.C. S.C.).
