Over the last decade or so, Canadian courts have become increasingly unwilling to enforce non-competition clauses in employment contracts, except in limited exceptional circumstances. Despite this, some employers continue to keep them included in their contracts of employment either because they are using template contracts that have not received timely legal updating, or feel that no damage can be done by leaving the clause in – and perhaps it might even create a deterrent for a departing employee from taking up work for the competitor.
An interesting decision came out of the Supreme Court of British Columbia in late May of this year warning that including a non-competition clause in a contract may actually cost the employer financially (Ostrow v. Abacus Management Corporation Mergers and Acquisitions).
In this case, Mr. Ostrow was employed as a Senior Tax Manager for nine months with Abacus, a private equity company. He signed an employment contract, which he had negotiated on some points, which included a six month non-competition clause. After being approached for alternative employment by a third party four months into his employment, he sought confirmation of his job security from Abacus. Abacus confirmed his job security at that time.
Despite this, Abacus advised Mr. Ostrow three months later that he should begin looking for new work. Two months after that, he was terminated effective immediately. He was handed a termination letter, which reminded him of his non-competition obligation. He was provided with one week pay in lieu of notice. He obtained alternative employment 16 months after his termination.
In determining his common law entitlements, Justice Watchuk considered his age of 40, his position, his length of employment, the assurances of job security and most importantly, the non-competition clause and its impact on the increased difficulty Mr. Ostrow faced in finding alternative employment. It is also important to note that Abacus did not seek to enforce the non-competition clause, but the court found this to be irrelevant as long as Mr. Ostrow was led to believe it was enforceable. Considering all of these factors, the court concluded that six months was an appropriate reasonable notice period for the nine month employee.
What should employers do in light of this case? Firstly, employers should carefully review their employment contracts and examine any restrictive covenants. If there is one included that has little hope of being enforced or there is no real desire to enforce it, consider removing it. Lastly, in terminating an employee, an employee should only be reminded of their non-competition obligations should there be some assessment that it may be enforceable. Consider advising the employee that they are not bound by it when searching for post-termination employment. Otherwise, employers may risk an increased notice period as a result.
Read the full decision here: http://www.canlii.org/en/bc/bcsc/doc/2014/2014bcsc938/2014bcsc938.html