On October 25, the Ontario government proposed legislation that, if passed, would prohibit the practice of imposing non-compete clauses on employees.
Although this legislation was introduced by Ontario’s provincial government, this type of clause can be found in employment contracts across Canada. Here’s what employees need to know about non-compete clauses.
What is a non-compete clause?
A non-compete clause, also known as a non-competition clause, is a section of an employment contract that prevents an employee from working for a competitor or starting a competing business. It applies during the employment relationship or for a certain period after the employer and employee part ways.
These clauses are not unique to contracts for technical or executive employees. I’ve also found them in the fine print of agreements across a variety of industries and wage levels.
READ MORE: What you need to know before you sign a contract — even if your employer asks you to
The proposed legislation is particularly timely, as remote work becomes increasingly popular. It’s now easier for employees to look for jobs in a wider network of competitors, so more employees may be tempted to breach their non-compete clause.
What are the consequences of non-compete clauses?
Non-compete clauses were originally intended to shield employers’ interests. But in my employment law practice, my colleagues and I have seen some employers use them to exert undue control over employees.
The clauses can suppress wage growth, since they prevent people from seeking a new job with higher paying competitors, and they’re often criticized for exploiting the asymmetry of knowledge and resources between the employer and the employee.
While the proposed law would mark the first time non-compete clauses are banned by legislation in Canada, they haven’t held up under previous legal challenges.
The majority of non-compete clauses challenged in the judicial system have been rendered unenforceable. Canadian courts, in my experience, look unfavourably on clauses that restrict an individual’s ability to use their knowledge and experience to earn a living.
Why do employers use non-compete clauses?
Many employees don’t know that non-compete clauses are likely unenforceable, so employers continue to build the clauses into contracts.
This often intimidates employees into avoiding rival companies. Rather than risk being sued by a former employer, workers might choose to forgo opportunities to work with a competitor or even switch industries entirely to comply with the contract.
How will the new non-compete legislation affect employees?
The proposed legislation could actually improve employee retention. Employers may be more inclined to cultivate a better workplace if there is a more substantive risk that employees will resign to work for a competitor.
Are non-compete clauses actually enforceable?
There are some circumstances in which non-competition clauses are upheld.
To be considered enforceable, the clause must be reasonable in both geographic and temporal scope. For example, a non-compete clause that extends across Canada and spans three years would likely be unenforceable. A non-compete clause that covers a particular city and spans a period of three months, however, could be enforceable depending on the employer’s industry.
Although non-compete clauses are seldom upheld in court, companies will protect their interests in other ways. Employers can still bind employees through confidentiality clauses, intellectual property clauses and non-solicitation clauses that restrict employees from poaching clients, vendors or existing employees after the working relationship has ended.
What do I do if I have a non-compete clause in my contract?
If you are let go and your contract contains a non-compete clause, you should have it reviewed by an employment lawyer, like someone from my team at Samfiru Tumarkin LLP, immediately. We can determine whether the clause is enforceable and ensure that you get proper severance pay, which could be as much as 24 months’ pay.
If you are applying for a new job with a competitor, you should advise them of the existence of the non-compete clause or speak to your former employer about consenting to a waiver of the clause.
Don’t let the existence of a non-compete clause intimidate you and prevent you from finding work elsewhere.
Contact the firm or call 1-855-821-5900 to secure assistance from an employment lawyer in Ontario, British Columbia or Alberta. Get the advice you need — and the compensation you deserve.
Fiona Martyn is an employment lawyer and associate at Samfiru Tumarkin LLP,
Canada’s most positively reviewed law firm specializing in employment law and long-term disability claims. Her firm provides free advice as the hosts of Canada’s only Employment Law Show on TV and radio.