In an ever-changing landscape of improved mobility and globalized markets, restrictive covenants, such as non-competition, non-solicitation, and confidentiality clauses, play a pivotal role in protecting business interests and are increasingly commonplace in modern employment contracts. However, their enforceability in British Columbia can be complex and nuanced, both from a legal and practical perspective. Employers need to be aware that there is no one-size-fits-all solution to protecting their legitimate business interests. Employees should be aware that even where a clause may be invalid or unenforceable, that may not deter a former employer from attempting to enforce it.
Non-Competition Clauses (i.e. Non-Competes)
Non-competition clauses are designed to prevent former employees from engaging in a particular competitive activity with their previous employer for a set duration within a specific geographic area.
In B.C., these clauses are scrutinized rigorously by courts. Courts recognize that a restraint on an individual’s ability to work within their own industry and/or within a particular field can be devastating both professionally and financially. Thus, non-competes are presumptively unenforceable and courts will only enforce a clause that is reasonable between the parties bearing in mind the public interest. The party seeking to uphold the clause must demonstrate:
(1) It has a proprietary interest worthy of protection
(2) This interest cannot be adequately protected by other less restrictive measures
(3) Its terms are reasonable in the following three elements:
- the restricted activity,
- the duration, and
- the geographic area.
The non-compete must contain each of those elements and they must only be restrictive enough to protect the business interest. They must be reasonable, taking into consideration the circumstances of the particular employee they affect. For example, it would be unreasonable to prevent a grocery store clerk from working at any business, for 20 years, anywhere in the world. There could not possibly be a business interest that would require that level of restriction for an entry-level position. Courts therefore tend to favour narrowly construed non-competes that are tailored to a particular individual and business interest and will usually find ones that are overbroad in any of the three elements to be unreasonable (and therefore unenforceable).
By the same token, courts will also favour less restrictive measures, such as non-solicitation clauses, over non-compete clauses, unless the latter is justifiably necessary. In cases where a non-solicitation clause could have adequately protected a business interest, the court may find the non-compete to be unenforceable. Courts will also scrutinize the precise wording of a non-compete. For example, if a non-compete’s geographic area is vague, ambiguous, or unclear, such that a reasonable (i.e. average) person cannot determine what it means, the court will refuse to enforce it. Likewise, a clause that does not properly describe the activity being restricted could be found to be unenforceable.
Given the above, non-competes are incredibly difficult to enforce and are typically effective in a select few scenarios. In most cases, the same business or proprietary interest can be protected by a non-solicitation clause.
Non-Solicitation Clauses (i.e. Non-Solicits)
Non-solicitation clauses aim to prevent former employees from soliciting clients or employees of their previous employer. These clauses are more favourably viewed by courts in B.C. compared to non-compete clauses because they are considered less restrictive. Like non-competes, to be enforceable, non-solicitation clauses must be clear, reasonable, and not excessively broad in terms of the duration and scope of prohibited activities. The focus is on preventing unfair competition while allowing the former employee the freedom to continue working in their field. From a public policy perspective, the court is more willing to protect the relationship between the employer and the clients and/or employees that are the subjects of a non-solicit. In most cases, a former employee would have only become acquainted with those individuals and entities because of their employment with the employer. Restricting the former employee from using the relationships they built while working for a company to then compete against that same company is in most cases reasonable, assuming the length of time is appropriate.
However, non-solicitation clauses can also be found to be unenforceable if they are vague, ambiguous, or unreasonable in scope. A court will have no issue refusing to enforce a clause if it is poorly drafted or if the duration is too long for a particular employee. For example, some non-solicits have been found to be unenforceable where a former employee is restricted from soliciting all of the customers or clients of a company. The courts have reasoned that most employees have no way of knowing, and therefore never have been able to leverage a relationship with all of the customers or clients of a company. On the other hand, courts have been more likely to enforce clauses that are limited to only those customers that a former employee dealt with in the months prior to the end of their employment.
While they could be unenforceable if poorly drafted or considered, non-solicitation clauses are a more practical and reliable way for businesses to protect their interests. Because of this, employees should be more wary of contravening these clauses, particularly if they could materially harm a former employer in doing so.
Confidentiality Clauses
Confidentiality clauses are designed to protect sensitive information and trade secrets from being disclosed or used by former employees. In B.C., these clauses are generally enforceable. Like non-competes and non-solicitations, however, they must be reasonable and necessary to protect legitimate business interests. The courts will uphold confidentiality agreements as long as they do not overreach in scope and duration. These clauses must clearly define what constitutes confidential information and the obligations of the employee concerning such information. Employers who carefully draft a confidentiality clause with specific items that are relevant to their business will have a better chance of enforcing their clause than those who only generally define confidential information. That said, whether or not a confidentiality clause is well-drafted may not matter, as employees owe a common law duty of confidentiality to their employers, which employers can fall back on if their employment agreements contain an unenforceable clause or do not contain one at all.
Conclusion
For employers in B.C., crafting enforceable non-compete, non-solicitation, and confidentiality clauses requires a careful balance between protecting business interests and respecting employees’ rights and freedoms. Employers should seek legal guidance to ensure these clauses are tailored to their specific needs and comply with the standards set by our courts. Likewise, employees who are subject to such clauses should seek legal advice before engaging in any activities that could constitute a breach. Understanding the limitations and enforceability of these clauses is essential for both employers and employees navigating the complexities of employment contracts.
As mentioned at the outset, even if an employee believes that a particular clause is unenforceable or invalid, that may not discourage a former employer from attempting to enforce the clause(s) in any event. The reality is litigation can be an effective way for an employer to deter a former employee from continued contravention of a restrictive covenant and can also be used to signal to other current and former employees that the employer is not afraid to rely upon those terms. While litigation is costly for all parties involved, a former employee will have a harder time funding a defense than a company.
We note that the information above is only a brief summary of the considerations behind restrictive covenants and that these issues and their real-world applications are more nuanced than can be described in a blog post. If you need any assistance or want to discuss drafting, enforcing, or navigating restrictive covenants, please reach out to us. We are here to help!
