HR Professional - August/September 2009 - (Page 17)

L E GA L BY MARY BE TH CURRIE AND CARL CUNNINGHAM COMPETING PRIORITIES: RESTRICTIVE COVENANTS wo recent decisions remind employers of the importance of creating carefully drafted employment agreements to protect them from employees seeking to compete after they leave the organization. In 2008, the Supreme Court of Canada in RBC Dominion Securities Inc. vs Merrill Lynch Canada Inc. confirmed that departing employees are generally free to compete against their former employer in the absence of an enforceable contractual restriction. While the RBC decision reminds employers to use written contracts, the decisions of Shafron vs KRG Insurance Brokers (Western) Inc. and H. L. Staebler Company Ltd. vs Allan also illustrate that contractual restrictive covenants must be precise and reasonable in order to be enforced. A restrictive covenant is a type of clause that may be included in an employment contract and restricts an employee’s post-employment activities. These include non-solicitation clauses, which limit T • Are the geographic limitations and time limits in the covenant reasonable? • Is a clause reasonable in its restricted activities? Unenforceable covenants Staebler provides a recent example of the type of restrictive covenant that a court will likely find unreasonable. The Ontario Court of Appeal held that the non-competition clause in question was overly broad and unenforceable because it contained no geographical limitation and did not restrict prohibited business activity to competitive activities; it prohibited all conduct with the clients or customers (so the employee who sold insurance for Staebler could not even sell coffee or other non-competitive products to former clients). Ambiguous clauses are not enforceable In addition to being reasonable, the restrictive covenant must be clear and unambiguous. In Shafron, the ambiguous portion of that restrictive covenant was the reference to activities in “metropolitan Vancouver.” There is no defined understanding of what areas are included in metropolitan Vancouver, so the British Columbia Court of Appeal applied the concept of notional severance and replaced that term with “the City of Vancouver, the University of British Columbia Endowment Lands, Richmond and Burnaby.” But the Supreme Court of Canada held it was inappropriate to extend the concepts of notional severance or blue penciling (i.e., strike or remove a portion of the unenforceable or ambiguous clause) to rewrite restrictive covenants, directing employers who impose post-employment restrictions to be precise, because there will be no second chance. Employers should ensure all restrictive covenant clauses in their employment contracts are specifically tailored to the individual they are designed to restrict. For a list of suggestions to increase the likelihood your restrictive covenants will be enforceable, visit Mary Beth Currie and Carl Cunningham are partners in the Employment Services Practice with Bennett Jones LLP in Toronto. A u g u s t / S e p t e m b e r 2 0 0 9 17 In addition to being reasonable, the restrictive covenant must be clear and unambiguous. the employee’s ability to solicit the business of the company’s customers or persuade its company’s employees to cease employment with the company, as well as non-competition clauses, which limit the employee’s ability to work in a business activity that is competitive with the employer’s business. ‘‘ ’’ Reasonableness requirements The courts have said restrictive covenants will only be enforced if reasonable. The primary factors determining reasonableness are: • Does the employer have a proprietary interest entitled to protection? w w w. HRT houghtLeader. c om

Table of Contents for the Digital Edition of HR Professional - August/September 2009

HR Professional - August/September 2009
Editor's Letter
Leadership Matters
Wellness ROI
Human Capital
Talent Management
HR 101
Interview with Dr. Kathryn Cramer
Off the Shelf
The Last Word

HR Professional - August/September 2009