Employment contracts often contain non-solicitation clauses, which generally prohibit departing employees from soliciting the customers or employees of their previous employers. Highly skilled employees, however, are often asked to sign contracts that include non-competition provisions, which prohibit them from competing with their former employers, subject to certain conditions. Consequently, non-competition clauses in employment contracts present a conflict between two long-standing common law principles: discouraging restraints on trade and respecting freedom of contract.
The “general rule”, as stated by the Ontario Court of Appeal in Lyons v. Multari, is that non-competition clauses in employment contracts are void, particularly where a non-solicitation clause would have adequately protected the employer’s interest.
Indeed, a covenant in restraint of trade, such as a non-competition clause, is enforceable only if it is “reasonable” between the parties and with reference to the public interest. Reasonableness is determined in light of the circumstances existing at the time the contract is made, which includes the parties’ expectation of what might happen in the future.
Non-competition clauses must be interpreted and enforced in their entirety: they cannot be read down, and only trivial parts of such covenants may be removed unilaterally. Moreover, the party seeking to enforce the non-competition clause bears the onus of establishing, on a balance of probabilities, that (i) it has a proprietary interest entitled to protection; (ii) the length of the clause and its geographical area (e.g., the City of Toronto or “Canada”) are not too broad; (iii) its term are clear and certain; and (iv) in all circumstances, the restriction is reasonably required for the employer’s protection. In other words, if it is overreaching and unnecessary to protect the employer or its business interests, the court is unlikely to enforce these types of contractual provisions.