Restraint of trade clauses in employment contracts: are they enforceable?

Posted on June 11, 2016 · Posted in Blog, Employment Law

As the workforce becomes more flexible and dynamic, with many employees now changing jobs over the course of their career with greater frequency, so too are contracts of employment becoming more stringent. Many people now receiving offers of employment often find themselves signing contracts which contain strictly worded non-solicitation and non-compete clauses.

Reading the fine print of a contract is very important, as once there is a meeting of the minds and the dotted line is signed, the contract terms are binding. Many people understandably want to know before signing an employment contract whether or not these clauses are enforceable? The short answer? It depends on the type of clause and how it’s worded!

Non-solicitation clauses are generally enforceable, as it is not unreasonable for an employer to insist that departing employees will not solicit its customer lists and those under its current employ to a new employer, or a competitor. Doing so could damage the business interests of the employer, and as such the request is considered to be fair.

Non-solicitation clauses, however, must be clearly worded and cannot apply for an indefinite period of time. For example, a non-solicitation clause that applies for between one and two years will generally pass muster. Yet any such request for a period of five years would be considered excessive and unreasonable by the courts.

Non-compete clauses are more restrictive and as such courts are generally hesitant to enforce them unless they are of limited duration and apply to a specific geographical area. Whereas insisting that departing employees do not siphon customer lists from their ex-employers is reasonable, the presumption of prohibiting a person from working in their chosen field is considered an excessive restraint on trade.

Suppose a hair stylist were to leave their employer and immediately set up a new shop across the street, a non-compete clause could be enforced given that the result could be damaging to the former employer. So a clause stipulating that the hair stylist would not compete for a period of six months, and not within a 500 metre radius of the former employer is specific enough that it would likely be enforceable. On the other hand, a non-compete clause barring the hair stylist from working anywhere in the G.T.A. for at least five years would be stricken by the courts in one fell swoop!

In sum, signing a contract of employment must always be undertaken with care and precision. As the adage goes, the devil is in the details, and if you need independent legal advice before signing a contract of employment, I am thrilled to assist! I can be reached at 647-468-8347 or by email at jeremy.richler@gmail.com!