VALIDITY CHECK: Are the non-compete and non-solicitation clauses in the employment agreements used at your company still valid?

The departure of a key employee often creates great concerns for his or her employer, particularly when said employee holds confidential information on the employer’s business, the disclosure of which would cause serious prejudice, despite the fact that the employment agreement contains non-compete and/or non-solicitation clauses (restrictive covenants). Although these restrictive covenants are widely recognized in law, the courts occasionally tighten the rules that guide the analysis of a judge. If you have not reviewed your employment agreements recently, you should be aware of the following.

Firstly, a non-compete clause must be stipulated in writing, in express terms and limited as to time, territory and type of employment necessary for the protection of the legitimate interests of the employer¹. In addition, the courts have established additional criteria that are considered when analyzing this type of clause, including the position held by the employee, his or her seniority, salary, length of employment and the size and market of the employer’s business². As some of these elements constantly change in the business environment, the existing employment agreement may no longer accurately reflect the employee’s situation, hence it is crucial to keep your employment agreements up to date.

Other important elements, which have been written about extensively in recent years, are the duration and territory of a non-competition clause. The duration must be limited to the amount of time during which the employer’s interests are really at risk, such as the time required to effectively replace an employee or for confidential information to become obsolete. As for the territory protected by this clause, courts agree that it must be limited to that in which the employee actually performed his or her duties. Consequently, a reference to the territory served by the employer would be too broad³. For example, a reference such as “the Province of Quebec” or “Canada” is likely to be too broad if it does not correspond to the actual territory served by the employee.

On the other hand, a non-solicitation clause is generally less strict than a non-compete clause, since it does not prevent the employee from working for a competitor, but rather limits certain behaviours, namely with respect to the clientele served. The solicitation must be the result of positive, constant, direct and insistent behaviour, so that the simple fact for an employee to communicate with former clients is not sufficient⁴. This clause must at least contain a time limit and a clear and precise description of the targeted clientele⁵. However, it must be noted that there is still some uncertainty as to the need to include a territorial limit, for which a minority of the applicable case law, in specific circumstances, continues to advocate⁶.

In conclusion, it is essential to remember that restrictive covenants must be carefully analyzed for each employee and cannot be identical for everyone. The wording of such clauses is extremely important since the courts interpret them strictly and refuse to rewrite those that are imprecise or incomplete. Consequently, such clauses must be reviewed regularly.

We invite you to contact AVENS to draft or analyse the restrictive clauses in your employment agreements