The Purpose Of A Non-Competition Agreement

An employer cannot limit an employee’s right to go out and set up a competing business or work for a competing employer following termination of employment.

There is no common law prohibition against competition.

In order for an employer to limit an employee’s rights following termination of employment to work for other competitive organizations or just to set up their own competitive organization, there must be a written non-competition or restrictive covenant. Employers often seek to bind employees to these types of agreement in an attempt to limit the employees’ actions following termination of employment. Non-competition agreements are invariably in the employer’s (or organization’s) interests. They do not favor the employee or worker.

There are several parameters to a non-competition agreement. In order to be enforceable, it has to be reasonable in terms of duration, in terms of spatial limitations, and the employer has to establish that there is a legitimate proprietary interest worthy of protection. If an employer is not able to establish those three different points, then the court ultimately would find that the non-competition agreement is not enforceable.

In terms of duration, generally, the longest period of time that is acceptable is in the neighborhood of 24 months. Remember, this is fact specific, it’s dependent upon how long the employee had been employed with the organization and the nature of the business the company is engaged in.

Spatial limitations are usually restricted to the geographical area in which the employee worked. Enforceability is really, however, fact-driven. In a recent case, where the employer signed an employee to a non-competition agreement which had a spatial limitation of approximately 2 kilometres, the employee set up a competing business on the next block. The court found that given the nature of the clients that the organization served, that the limitation was not reasonable and the former employee was able to set up a business on the next block. The clients were mostly walk-ins off the street rather than repeating clients who came looking for one particular individual. The court found that under those circumstances, the spatial limitation was too broad.

The employer also has to establish that there is a legitimate proprietary interest worthy of protection. It’s not in the public interest to enforce the non-competition agreement if there’s nothing of value to protect. The right circumstances may include a workplace where an employee is an inventor, for instance, and integral in terms of working for an organization which is top secret. Or they’re integral in terms of inventing the technology that will allow the employer to be a pioneer in a certain area. In those circumstances, the non-competition agreement may be enforceable.

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If you, or someone you care about, is dealing with employment law issues in the Ottawa, Ontario Region, contact Law Office of Melynda Layton.

This article is taken from an interview with Melynda Layton, Employment Lawyer at Law Office of Melynda Layton , an Ottawa, Ontario Employment Law Firm. Note that laws vary from province to province. Please consult with a lawyer in your own area to be sure of the laws and specific issues in your own jurisdiction.