Clear and reasonable employment contracts are enforceable — unless the employer doesn’t live up to its obligations
By Jeffrey R. Smith
Employees can gain quite a lot of knowledge about their employers while working for them, not to mention improve their skills through professional development. So it makes sense that some employers with sensitive information or expensive investments in employee training may want to make sure they don’t get burned if employees depart without the employee getting a fair amount of benefit from the employees’ efforts. Hence the reason some employers feel the need to have new employees sign non-compete and non-solicitation agreements.
Non-compete agreements usually involve an employee agreeing not to compete directly with the employer’s business in a certain area for a certain amount of time after the employee resigns or is dismissed for cause. Non-solicitation agreements prevent the employee from trying to steal customers away from the employer if she leaves, again for a certain period of time after leaving. Both types of agreements can help a business protect itself, but can be contentious when enforced.
There are differing opinions in employment law circles on how enforceable these agreements can be. Often, courts won’t uphold such agreements because some aspect of them is unreasonable, such as the size of the geographic area or the length of time in which the employee is prevented from conducting business. The skills of the employee can be a factor, too — if job opportunities in the employee’s wheelhouse are strictly limited because of non-compete agreement, it may be unreasonable. And if customers who work closely with an employee decide on their own to move with the worker to another company, that isn’t solicitation.
Restrictive covenants can be enforceable, however, if they are worded carefully and the employer can prove they are for legitimate protection of the business and don’t overstep. A good restrictive covenant should protect an employer’s business interests but doesn’t put too many shackles on an employee’s ability to make a living if she leaves the company.
It’s important to remember, though, that such agreements are part of a contract. Once agreed to, the employee is bound to it, but so is the employer.
A few years ago, a British Columbia company bought a smaller company with a sales agreement that included employing the smaller company’s owner and employees. The smaller company’s owner wanted an employment agreement, so one was drawn up stipulating he would be employed under the terms of the larger company’s collective agreement as a full-time employee. The agreement also included a three-year non-compete agreement.
Over the next couple of years, the company lost a key contributor and the director didn’t do much to stop the bleeding. Business declined and the employee began receiving less work. Eventually, he quit and started working for a competitor shortly thereafter.
The company sued for breach of contract regarding the non-compete agreement. The B.C. Supreme Court found the non-compete agreement was actually reasonable and would be enforceable, except for one thing — the employment contract was no longer in effect. The company in fact breached the employment contract because the employee’s hours and workload were reduced when business declined and nothing was done to stop it, when the contract stipulated the employee would receive full-time work under the terms of the collective agreement. Because this part of the employment agreement was breached, the contract and its non-compete agreement was no longer in effect, leaving the employee free to work for a competitor: see Powell River Industrial Sheet Metal Contracting Inc. v. Kramchynski, 2016 CarswellBC 1342 (B.C. S.C.).
A well-constructed and clear employment contract and restrictive covenant can be useful to employers, but aren’t any good if the employer doesn’t live up to its side of the contract.
