Can an employer force you to sign a contract with a non-compete clause?

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

By Scott Hawryliw on November 11, 2019
Estimated reading time: 4 minutes

Before you sign, it’s important to consider what you’re getting in exchange—and whether what you’re being offered is worth agreeing to these new terms and conditions.

Photo by pch.vector from Freepik.com

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.

MORE BY SCOTT HAWRYLIW:

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.

Website

Comments Cancel reply

Canadian couple outside of home, wondering if they should transfer it to their corporation.

Ask MoneySense

Is transferring your principal residence to your corporation a good idea?

Would swapping a house for cash from a corporation save on taxes? And is this tactic worth it in...

Is transferring your principal residence to your corporation a good idea?

Ask a Planner

RBC’s discount broker launches international trading—what to know before you invest

It’s a first among bank-owned discount brokers in Canada. With more banks likely to follow RBC's lead, what should...

RBC’s discount broker launches international trading—what to know before you invest

Ask a Planner

What are the tax implications if you resell Taylor Swift tickets?

Allison resold her Eras Tour tickets instead of going to the concert. The resale website asked for her SIN,...

What are the tax implications if you resell Taylor Swift tickets?

Ask a Planner

Should you take extra RRIF withdrawals to increase your estate?

Contrary to the conventional advice, taking more than the minimum RRIF withdrawal can at times save tax on your...

Should you take extra RRIF withdrawals to increase your estate?

Ask MoneySense

How much income can I earn while getting OAS?

If you continue working in retirement, it could cause a clawback on your OAS. Here’s how to figure out...

How much income can I earn while getting OAS?

Ask a Planner

Estate planning for singles—is a trust company the answer?

Canadians with no children or siblings must consider estate planning alternatives. Here’s why trust companies can be a good...

Estate planning for singles—is a trust company the answer?

Ask a Planner

What to know as Canada’s capital gains tax changes remain in legal limbo

The federal government’s capital gains inclusion rate increase has yet to become law. There’s a slight chance it may...

What to know as Canada’s capital gains tax changes remain in legal limbo

Ask a Planner

How to report foreign income in Canada

Canadians have reporting requirements for foreign assets, income and tax paid. Here’s how to claim each of these on...

How to report foreign income in Canada

Ask a Planner

Should you invest an inheritance in an RRSP or a TFSA?

A Certified Financial Planner provides perspective on the TFSA vs. RRSP question for a couple in their late 50s...

Should you invest an inheritance in an RRSP or a TFSA?

Ask a Planner

How to plan for taxes in retirement in Canada

In retirement, some income is not subject to withholding tax, and you may potentially owe tax after filing each...

How to plan for taxes in retirement in Canada

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

MORE BY SCOTT HAWRYLIW:

About Scott Hawryliw

Comments Cancel reply

Related Articles

Is transferring your principal residence to your corporation a good idea?

RBC’s discount broker launches international trading—what to know before you invest

What are the tax implications if you resell Taylor Swift tickets?

Should you take extra RRIF withdrawals to increase your estate?

How much income can I earn while getting OAS?

Estate planning for singles—is a trust company the answer?

What to know as Canada’s capital gains tax changes remain in legal limbo

How to report foreign income in Canada

Should you invest an inheritance in an RRSP or a TFSA?

How to plan for taxes in retirement in Canada