Highly skilled workers often have non-competition clauses in their employment contracts. For example, an insurance salesperson may be required not to continue business with his or her clients after leaving the company. While a non-competition clause may protect the employer from competition with its former employees, it certainly imposes hardship on the departing employee as he or she looks for new work.
In the area of employment law, the courts have long recognized the difference in bargaining power between employers and employees. As such, a court will only enforce a restrictive clause in an employment contract if it is “reasonable between the parties and with reference to public interest.”*
Technically speaking, there are two kinds of restrictive clauses regarding competition: non-competition clauses and non-solicitation clauses. The Ontario Court of Appeal explains the difference: a non-competition clause prohibits the departing employee from conducting business with former clients and customers, whereas a non-solicitation clause merely prohibits the departing employee from soliciting their business.+
It’s well-settled in law that only in exceptional circumstances would a non-competition clause be enforceable; such a clause will be deemed unreasonable and thus unenforceable where a simple non-solicitation clause would have been sufficient.
The onus is on the employer to prove that the restrictive clause in question is reasonable. If you are a employer, you should be careful when imposing either a non-competition clause or a non-solicitation clause on your newly-hired employees.
*Elsley Estate v. J.G. Collins Insurance Agencies Ltd., [1978] 2 S.C.R. 916 at 923
+H.L. Staebler Company Ltd. v. Allan (2008), 92 O.R. (3d) 107
