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Enforcement of Non-Competition Clauses in Employment Agreements

Are you entering into an employment agreement with an employee who could seriously affect your business if they left your employment and started competing against you?  If so, then you might want to consider including a non-competition agreement in the employment agreement.  However, you should be aware that courts in general do not like non-competition agreements because they are seen to be in "restraint of trade."

Consequently, in order for a court to uphold a non-competition agreement, the employer will have to show that the "restraint of trade" was reasonable.

Generally speaking, most non-competition agreements prevent an employee from competing with the employer in a specific geographical area for a specific period of time.  However, the British Columbia Court of Appeal in Rhebergen v. Creston Veterinary Clinic Ltd., ([2014] B.C.J. No. 417) recently considered a non-competition agreement that did not prevent the employee from competing with the employer following the termination of their employment, but rather imposed specific amounts that the employee would have to pay the employer if it did compete with the employer in a specific geographic area over a specified period of time.  Even though the clause did not specifically prevent the employee from competing with the employer, the Court found, on a functionalist approach, that the clause was in restraint of trade.  The Court then went on to consider whether the restraint was reasonable and found that it was essentially because the employer arrived at the figures that the employee would have to pay in a reasonable manner.

The employer had based their calculations on their experience with a previous employee who had left their practice.  The employer calculated the investment that would be made in the new employee with respect to mentoring, training and equipment which amount they would not recover unless the employee remained with them for 3 years.  They ultimately calculated their unrecoverable costs and what they considered to be the impact on their goodwill if the employee competed with them.  Based upon those calculations they arrived at figures that the employee would have to pay if they departed after the first year, the second or the third year of a three year term contract.

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Merovitz Potechin LLP
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Ottawa, ON K1Z 8R1

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