ASK A LAWYER: Do employees have to sign non-compete agreements? Are they enforceable?

Non-competes are increasingly common – but they have to be reasonable

Timothy N Sullivan Ottawa lawyer answers questions

Employees may be required to sign an employment contract as a term of employment. Typical employment agreements include the employee’s start date, payment terms, details of future increases or changes in remuneration, duties, the term of employment and the terms of dismissal.

As with most contracts, the common law and statutory rules must be respected. Consideration, meaning a promise of exchange of something of value must be made, there must be proper offer and acceptance and a contract must be in writing. Non-comps signed after employment has already started are seldom enforceable without additional consideration. Any employment contract that contains a non-competition clause should be reviewed by a qualified legal professional before signing.

The employment contract may also include, as part of the conditions of leaving/termination, a non-compete clause.  But are these clauses legal?  Are they enforceable?

Non-competition clauses must be as permissive as possible

As a general rule, non-competition clauses must be as permissive as possible:  They must allow the employee to work (in another organization), while protecting the employer should the employee leave their employ.  Certain positions may leave the employer open to increased threat of competition:  If the employer has provided the employee with intellectual property, proprietary training, confidential client information or other advantages that could be used against the employer after the employment relationship ends.

Typical non-compete clauses

Non-competition clauses are usually comprised of two components:

  1. Geographic limitation.  In this case, former employees may be prohibited from working in the same industry within a certain geographical area.  So a salesperson whose territory may have been Toronto may not be able to sell the same products/services within Toronto.
  2. Time period.  The former employee may be restricted from working within the same industry for a specific period of time following their departure from the employer. This is generally to prevent employees from ‘stealing’ clients when they leave a given employer.

What do the courts say?

Generally speaking, Ontario courts have not enforced non-compete clauses when they are deemed to be too restrictive, but have upheld reasonable limitations on post-employment competition by former employees.

What is ‘reasonable’ depends on the nature of the industry.  Dentists, for example, may require a certain neighbourhood to be off-limits to a former associate dentist – but only for a certain number of years.  A software developer, on the other hand, may be prevented from working in a larger geographic area – like a country or even a continent – but, again, only for a certain number of years.
The court may reduce the geographic or time constraints if they are deemed to be unreasonable.  However, courts are usually unable to prescribe a ‘reasonable’ alternative, so when non-competes go to court, they either fail or succeed – they aren’t modified.  For this reason, employers may specify wide geographical areas and long time periods in their employment agreements, but provide alternatives in the event of a dispute.

The courts have wanted to give autonomy to contracting parties and to permit them to contract any way they see fit but the courts have also been loath to encourage a limitation of a competition. This balance between competing concerns is reached when the geographic limitation and time limitation successfully achieved the objectives of both contracting parties. One is to foster a good and profitable relationship during employment and the other is to limit the resources from an employer being used against it to an economic detriment. The courts have only entered when that restriction to competition becomes unreasonable.

More questions?  Don’t hesitate to contact us.

 

This blog is provided for educational purposes only and should not be construed as specific legal advice. This blog should not be used as a substitute for competent legal advice from a licensed professional lawyer in your province.  

 

We’re hiring a new associate!

SullivanLaw Ottawa

SullivanLaw is looking to hire a litigation lawyer (family and civil law)

Thanks to our recent growth, we are looking for an associate to join the SullivanLaw team. This could be a great opportunity for a new lawyer looking to build their client base in an established small firm, or for a more experienced lawyer who wants the benefits of a small firm without the risks of sole proprietorship.

What the ideal candidate looks like:

  • Interested in litigation, principally family and civil (but other areas are available)
  • Someone who wants to join an active, thriving practice – but would also like some work/life balance, too
  • You are looking forward to building your own book of business over time
  • You have great research and writing skills
  • You’re well-organized and have an entrepreneurial streak
  • You’re interested in having an outlet (like our blog) to post your smart ideas about the law
  • You’re a member of the Law Society of Upper Canada
  • French language proficiency is an asset but not a requirement

What the position looks like:

  • Assist with existing family and civil law cases
  • Some solicitor work may be available
  • You’ll be expected to build your own book of business – but we can help
  • You’ll be expected to keep regular hours (but we don’t expect you to have 80 billable hours a week)
  • Remuneration will be based partly on salary, but the big bucks will come with billing and collection
  • You may have to water the plants from time to time. The upside is that we have free snacks.

Does this sound like something you’d be interested in? Would you like to discuss the finer points? Please send a cover letter and C.V. to the attention of Rebecca Lewis before May 15, 2017. References will be requested at an interview. We will also ask for a sample of your legal writing.

Get in touch – we’d love to hear from you.

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FROM ADVOCATE DAILY: Legal Aid means litigants less likely to settle

But there may be behind-the-scenes complicating factors

From this week’s AdvocateDaily:

A family court judge known for his strongly worded decisions is critiquing litigants who find little incentive to settle because they are funded by legal aid, says Ottawa family lawyer Timothy N. Sullivan.

While Sullivan, principal of SullivanLaw, says Justice Alex Pazaratz is right in pointing out such flaws, there are always factors behind the scenes that may force parties to litigate.

“The judge is correct to say there is no financial incentive to settle when you’re legally aided, but there’s also no other recourse for someone who may be abused than to go to court and, if it’s not criminal, ask for a civil restraining order,” Sullivan tells AdvocateDaily.com.

“Many of these cases are clogging up the system, we have people accused of murder having charges stayed because they can’t get to a judge on time, but we have people legally aided, who feel desperate and have no other recourse than to go to court.”

In the recent ruling from Pazaratz – who also wrote a decision known as “Breaking Bad Parents” – he bemoans taxpayer-funded cases that should be settled out of court instead of racking up costs and court time.

“The next time anyone at Legal Aid Ontario tells you they’re short of money, don’t believe it. It can’t possibly be true. Not if they’re funding cases like this,” he wrote.

 

To read the full article, and others by Timothy Sullivan, visit AdvocateDaily.

ASK A LAWYER: What happens when 2 executors can’t agree?

What are the rights and responsibilities of executors?

“My cousin wants a car from the estate of our recently-deceased, not-wealthy uncle. One of the executors of our uncle’s will is willing to give him a pretty good price for the car, just to get rid of it, but the other executor says they should sell it on Craigslist where they’ll get more money for it. Meanwhile, my cousin’s mother says he should get it for free, since ‘it’s family’. 

Who’s right? How should this sort of thing be resolved?”

The first thing to remember is that executors have a duty to all the beneficiaries of a will until all the beneficiaries affected by that will agree otherwise. In other words, an executor’s responsibility is to make decisions that will best benefit all beneficiaries of an estate.

In the case of a car to be disposed of by the estate, the terms of the will should dictate what happens: Sometimes a will specifies to whom the car is to be left; sometimes a will specifies that a beneficiary should be given preferential treatment regarding the purchase of the car from the estate. In the absence of such direction, it’s up to the executors to sell the car in a way that best benefits all beneficiaries – so Cousin Bob shouldn’t be allowed to purchase the car for $500 if the car could obtain $10,000 on the open market, unless all beneficiaries agree that this is acceptable.

However, the responsibility to obtain a beneficial value should not be excessive and co-trustees shouldn’t let a personal dispute get in the way. If Cousin Bob is prepared to pay a reasonable sum for the car – such as $9000 – then the beneficiaries may be consulted, and consideration may be given to the fact that holding out for a higher sum on Craigslist may mean increased storage, maintenance or financing costs. A relatively easy, early disposition of an asset may put money in the hands of the estate to earn interest or reduce borrowing charges.

There isn’t always a clear-cut answer to questions like this. Trustees have an obligation to respect the intentions of the testator and to act in a way that best benefits the heirs.

Questions? Don’t hesitate to get in touch.

This blog is provided for educational purposes only and should not be construed as specific legal advice. This blog should not be used as a substitute for competent legal advice from a licensed professional lawyer in your province.