This article looks at what restrictive covenants are and whether they are effective for businesses.
Businesses have a right to protect themselves from unfair competition and, today, information and ideas can be just as valuable as assets and property. Therefore, when an employee leaves a company and then either sets up a competing business nearby or joins a competitor, the original employer can be rightly concerned about whether trade secrets are being unfairly used against it. Restrictive covenants, such as non-compete clauses and non-solicitation agreements, can help protect businesses from these unfair practices, but these covenants can also lead to employment disputes if they are not worded carefully.
In the world of employment law, there generally two types of restrictive covenants: non-compete agreements and non-solicitation agreements. A non-compete agreement generally stipulates that an employee cannot compete directly with his or her former employer for a certain period of time and within a certain geographical range and usually covers actions like leaving a company for a competing employer or setting up a similar business nearby.
A non-solicitation agreement allows an employee to set up a competing business or work for a competitor, but it prevents him or her from soliciting former clients or work colleagues employed by the former employer.
Which agreement is more effective?
The most effective type of restrictive covenant will depend on a business’ specific expectations and demands. However, as Canadian HR Reporter notes, a non-solicitation agreement will generally have a better chance than a non-compete agreement of being upheld in court. That is because non-solicitation agreements are less restrictive and courts in Canada are leery of imposing undue restrictions on a person’s right to find new employment.
That said, as long as a court deems it reasonable, a non-compete agreement is enforceable in Canada. While what is reasonable can be hard to define, it essentially refers to striking the right balance between protecting a business from unfair competition and allowing former employees to find new work. A non-compete agreement that applies only to workers in high-level positions and which is in force only for a limited time and over a limited geographical area will stand a much better chance of being enforced than an agreement that is overly broad or restrictive.
For businesses that are involved in disputes, including with current and former employees, getting qualified legal advice is imperative. A law firm that is experienced in providing counsel to businesses will be in the best position to ensure that the impact of any dispute on a business is minimal and that such disputes are resolved quickly and effectively.