Employment Law/Restrictive Covenants

A recent case in BC illustrates the danger of employers using restrictive covenants that are too broad. A restrictive covenant is a clause that prohibits an employee from competing with the company after termination of the employment, usually for a specified period of time and usually in a specified geographical area.

There is a different type of protection available in the form of a non-solicitation covenant. Non-solicitation covenants prevent an employee from targeting other employees of the company or customers to try and induce those employees or customers to leave the former employer to do business with the departed employee’s new employer or business.

The courts have said that clauses that provide more protection than necessary to protect former employers’ genuine business interests are generally not enforceable. It is the employer’s obligation in these cases to prove that the clause is no broader than is necessary. In a recent case, 0777792 BC Limited v. Da Costa, the employer tried to obtain an interim injunction restraining a former employee from competing with the company.

The restrictive covenant in this case was drafted to prohibit the former employee from competing with respect to all services the company was engaged in, including services that he was not engaged with. Further, the covenant had no geographic restriction. In other words, on the plain language of the clause, it applied throughout the world. The employer argued that, practically speaking, the clause only applied to the Lower Mainland where the employer carried out its business, however, the court disagreed and said that if the employer’s business was indeed restricted to the Lower Mainland the clause should have so provided. The court further pointed out that the former employee was not a manager but was a technician. Finally, the court indicated that a non-solicitation clause would have been sufficient to protect the company’s interest. The Court stated: “when a non-solicitation clause could have substituted for a non-competition clause in an employment agreement, the non-competition clause will generally be unenforceable”.

The lesson for employers who have a legitimate interest in restraining the ability of departing employees to compete is to ensure that their clauses are no broader than reasonably necessary to protect their business interests.

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