Does A Termination Release An Employee From A Covenant Not To Compete

A recent case in Alberta (Globex- 2011) suggests that an employer who terminates an employee without just cause and without sufficient notice repudiates the contract of the employment and thus releases the employee from all obligations including any clause preventing the employee from competition and solicitation of the employer’s customers and employees.

The case is controversial and must be read with some caution because:

  • there have been cases in other provinces coming to the opposite conclusion – that covenants remain in force;
  • the finding in question was obiter – meaning that the covenants were found invalid for other reasons;
  • the case is not binding on superior courts outside of Alberta (it was not appealed to the Supreme Court of Canada);
  • most (good) employment contracts provide that an employer can terminate the contract with stipulated severance pay.  Therefore,  if the employer offers the stipulated severance pay arguably there is no breach of contract and no repudiation of the contract;
  • certain obligations of the employee, arising out of fiduciary duties and the duties of fidelity and good faith, could protect the employer’s trade secrets despite a repudiation of the contract by the employer – in other words, a wrongfully dismissed employee is not entitled to misapropriate and use the employer’s trade secrets.

Alf Kempf is the Chair of Pushor Mitchell’s Employment Law Group. He can be reached by phone at (250) 869-1215, or by email at [email protected].

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