Most non-compete agreements do not hold up: Experts
Microsoft and IBM have competed over the years (and have often cooperated on products) but recently they went to court over a non-compete agreement.
Lindsay-Rae McIntyre was sued in February by IBM after she accepted a job as Microsoft’s chief diversity officer. The case was settled, and McIntyre will join Microsoft in July.
Employers understandably do not want sensitive company secrets shared with a competitor
, but employees on the other would prefer not to have future job prospects unfairly restricted.
But who gets the benefit of the doubt in non-compete cases?
“In Canada, courts have generally been reluctant to uphold agreements that have the effect of restricting an individual’s ability to earn a living or pursue the job of their choice. Indeed, courts take the initial position that restrictive covenants in employment agreements are unenforceable unless the employer can demonstrate otherwise,” wrote Lisa Stam of Spring Law in Toronto on Employment and Human Rights Law in Canada blog.
“These are generally only upheld in exceptional cases.”
Stam advises employers to make sure that they have “solid restrictive covenant provisions in place” before signing off on non-compete clauses.
Stam referenced a case in which an optometrist in B.C. was restricted from establishing a new practice within five kilometres of his former employer. The optometrist quit and started a new business just 3.5 kilometres away.
The judge in the case, IRIS The Visual Group Western Canada Inc. v. Park, ruled that agreements could restrict a worker geographically
, but the insistence in the agreement that the optometrist cannot be involved in “carrying on, engaged in, interested in or concerned with a business that competes with” the employer was not reasonable.
“If an employer or a business in a position comparable to an employer wishes to protect its trade connections by restricting competition, it is essential that the scope of the restriction be clear as well as reasonable,” said Justice John Hunter in the decision.
According to Jason Hanson and Sandra Cohen, writing for Osler, Hoskin & Harcourt, “Canadian courts generally consider non-competition covenants in employment contracts to be ‘in restraint of trade’ and therefore unenforceable.”
What they can protect, according to the document on the firm’s web site, is an employer’s “proprietary interests that, under the circumstances, reasonably need protection.”
But what is more generally upheld in court is a related covenant that restricts solicitation: An employer can prevent a worker from taking his clients with him when he leaves employment, according to Gord McGuire, senior associate with Adair Barristers in Toronto.
“If the clause in question prevents competition, it's unlikely to hold up in court. Courts are reluctant to enforce such provisions, and will only do so in exceptional circumstances. If, on the other hand, the clause only prevents solicitation, its enforceability is more likely – but by no means certain,” wrote McGuire in The Globe and Mail.
Employees should be aware that what type of information they divulge may bite them where it hurts, he said.
“Even if your contract's non-compete and non-solicit clauses are unenforceable, you'll still be liable to your employer if you misuse its confidential information, and you may be limited in your ability to compete with the company if you worked in a fiduciary capacity,” according to McGuire.
Stringer LLP wrote a helpful (tongue-in-cheek) post on its web site entitled, How NOT to Draft an Enforceable Non-Competition Agreement.
It used some of the following as bullet points: Don’t bother with consideration; Make the scope of the agreement contingent and indeterminate; Stake your claim as broadly as possible, and of course: insist on several years free from competition.
Bottom line, employers can tell you not to divulge precious company secrets or poach clients, but they cannot tell you where to work!