“Do I have to agree to my employer’s new non-compete clause?”

Q. My employer wants me to sign a new contract that is much the same as the old, except for the fact that it includes a “non-compete” clause. Are these clauses enforceable? Are there guidelines for what an acceptable non-compete clause would be versus one that overreaches? And can the employer make me sign one before I claim a severance package?
–Jim

A. A non-compete clause is an agreement between an employer and an employee that prevents the employee from participating in a business that competes with the employer’s. And the addition of this clause constitutes a big change to your employment contract.

First of all, you should be getting something in exchange for agreeing to this new contract. If your employer asks you to sign this without offering you a bonus, raise, promotion or some other benefit, then I suggest you ask yourself why you would agree to do this.

If you have been offered something for signing, the next question should be: “Is what I’m being offered worth agreeing to these new terms and conditions?”

An employee is entitled to notice of a termination or pay in lieu of (instead of) notice of termination.

In non-competes I’ve reviewed on behalf of clients, the provision for notice of termination (the amount of time between the notice and the employee’s last day of paid work), or pay in lieu of notice, was a few months, but the proposed non-compete provisions were much longer, such as 12 months. In each case, my response to the employer was that the employee is happy to agree not to work in this capacity for the 12 months stipulated, provided we agree to a notice period (or pay in lieu) of 12 months. So if your employer is willing to pay you for the period of time that you are restricted from competing with them, this can be a great deal.

You are right in questioning whether such clauses are enforceable. The basis for this is that the employer is asking a court to tell someone they cannot work in their profession and should sit idle for that period of time. Allowing this to happen too easily is bad for society in the bigger scheme of things—meaning the country’s economy and social policies in general. However, I am not going to say that these provisions are impossible to enforce. To be clear, there are cases where non-compete provisions have been upheld.

In considering whether a non-compete provision should be enforced, courts will look at whether it is reasonable in terms of the geographic area that the restriction applies to, the amount of time that the restriction applies for, and whether the restriction upon the employee is clear. It is up to the employer to convince a court that the clause it is no broader than necessary to protect the reasonable interests of the business.

Another aspect that’s often at issue is whether the employee’s new role is actually a competing business activity. It’s fairly common for employees who are concerned that their non-compete provisions might hold up to get involved in businesses that are similar, and to then take the position that it is not a competing business. As the title of this clause suggests, they only apply to the competition. If you are doing something that is not a competing activity, but within the physical space and within the time limit defined, then it is not a breach of a non-compete clause.

You asked about claiming a severance package, but I’m not really clear how that fits in. If you have been terminated, it’s a bit late to be negotiating non-compete provisions in your employment contract.

As to whether you should agree to the new contract or not, I would suggest that you give some thought to what you are getting in exchange for agreeing and whether you plan to engage in something that is a competing business within the time and space defined. I also recommend that you get some legal advice on your specific situation to determine how likely it is for this clause to hold up.

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About Scott Hawryliw

Scott Hawryliw practises civil litigation law as a partner at Stewart Esten LLP in Barrie, Ont., with an emphasis on wills and estates, employment law, real estate disputes and general commercial litigation.

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