The law of restrictive covenants has been touched on by commentators too numerous to mention. It is one of the most discussed subjects in labour and employment law.
Generally speaking, a restrictive covenant acts to restrict the activities of a former employee after their employment has ended. They usually come in one of two forms: non-competition clauses and non-solicitation clauses. The law on restrictive covenants is that they are prima facie unenforceable as they are in restraint of trade and therefore against public policy. In order to be enforced, they must be proven by the party that seeks to enforce them to be a reasonable limit on trade.
Accordingly, one of the most common issues litigated with regard to restrictive covenants is whether they function to protect the employer’s interest and go no further (and are therefore reasonable and enforceable) or whether they go too far and limit the employee’s ability to earn a living or engage in trade (and therefore are unreasonable and cannot be enforced).
Another truism of the law regarding restrictive covenants is that a non-competition clause will almost never be considered reasonable where a non-solicitation clause would have sufficed to protect the employer’s interests. Generally speaking, the difference between the two is that a non-competition clause prevents the employee from working in the same industry as the employer at all, whereby a non-solicitation clause merely prevents the employee from contacting and/or soliciting the clients and/or other employees of the employer.
As a result, non-competition clauses are much more difficult to enforce than non-solicitation clauses. However, non-solicitation clauses also often find themselves being overturned as unreasonable with regard to the constraints they place on the employee. When looking at these constraints, the court will normally examine the geographical area covered by the clause, the length of time the clause operates, and most importantly with regard to non-solicitation clause, the scope of the restriction.
The recent British Columbia Supreme Court case of Edward Jones v. Mirminachi (2011) provides an excellent example of a non-solicitation clause that was not too broad and therefore was enforced by the courts. The wording of the clause read as follows:
[Y]ou agree for a period of one year following the termination of your employment, that you will not solicit by mail, phone, electronic communication, personal meeting, or any other means, either directly or indirectly, business from any customer of Edward Jones who you served or whose name became known to you during your employment with Edward Jones. Your agreement not to solicit means that you will not, during your employment in any capacity, and for a period of one year thereafter, initiate any contact or communication, of any kind whatsoever, for the purpose of inviting, encouraging or requesting any Edward Jones customer to transfer from Edward Jones to you or to your new employer, to open a new account with you or with your new employer, or to otherwise discontinue its patronage and business relationship with Edward Jones.
Mirminachi applied to the Court for a declaration that the non-solicitation clause was unenforceable because it was overly broad. Mirminachi argued that the second sentence of the clause modified the first sentence such that Mirminachi would be restricted from any contact with any Edward Jones customer.
In response Edward Jones argued that when the clause was read in its entirety, the prohibition was not against all clients of Edward Jones but only to those who had been known to Mirminachi.
The Court agreed with Edward Jones’ interpretation, finding that the second sentence was in fact to be read in light of the first sentence in the clause, and that therefore the restriction against solicitation applied only to those clients who Mirminachi had served or had knowledge of during her employment. As such it was not overly broad and could be enforced.
The above is an excellent (and somewhat rare) example of a non-solicitation clause which has been carefully drafted to reasonably protect the employer’s interest without unduly impacting the employee’s ability to earn a living. Accordingly it is a good example of a restrictive covenant.
Andrew D. Taillon
Barrister and Solicitor
Cox & Palmer
Latest posts by Andrew Taillon (see all)
- Making your employee handbook enforceable - March 26, 2012
- Constructive dismissal part 2: everything has its limits - February 23, 2012
- The debate over moral damages continues - January 20, 2012