18 May Tread carefully with non-competition clauses: Hawryliw
Employers should take care when drawing up non-competition clauses because they can be difficult to enforce, says Barrie employment lawyer Scott Hawryliw.
“The reason is you’re asking a court to tell someone that they should not be allowed to work in their profession for a certain amount of time,” Hawryliw, founder of SRH Litigation, tells AdvocateDaily.com. “The alternatives are to remain unemployed or underemployed in a different line of work.”
However, such clauses will hold up in some scenarios, he says. “That’s important to understand as well.”
There are three dimensions to a non-competition rider, Hawryliw says:
- the amount of time involved — generally a month to a year
- the geographical area, typically within a city or a number of kilometres from the business
- a definition of the competing activity
“The important part of whether one of these clauses will hold up is whether an employer can justify it as not being any broader than is reasonably necessary to protect the business in terms of these three dimensions,” he says.
For example, a proviso covering all of Ontario is only defensible for an employee who would be a major competitive threat upon leaving the company, says Hawryliw, who has years of experience handling employment contract matters, representing employers and employees.
“You’re a pretty big deal if that is justifiable,” he says.
On the other hand, a similar provision for a receptionist or clerk is likely unenforceable.
Typically, this type of stipulation is used for salespeople. These employees function semi-autonomously, building relationships with clients, and could pose a serious threat should they leave the company, Hawryliw says.
Employers can take two approaches when inserting a non-compete rider into an employee’s contract, he says.
One is to tailor it as narrowly as possible to a specific employee so it can be justified in court as reasonable and necessary. The other approach is to draw up a broader clause that you probably can’t enforce, Hawryliw says. “And really, you’re bluffing, and you’re just hoping that the employee looks at that and says, ‘Well that sounds scary. I guess I’d better not breach that condition.'”
Employers can choose either option, weighing the pros and cons, he says.
“Where you don’t want to be is in the middle, where you haven’t tailored it that much,” Hawryliw says. “You could find yourself stuck with a non-compete clause that is too broad, applying to an employee where you really need it to hold up.”
Employees, for their part, would be wise to have a lawyer review their non-compete clauses to see if it would hold up, he says.
“If it’s in the ballpark of ‘might hold up,’ then you would look very carefully at what kinds of restrictions the worker can live with,” Hawryliw says.
If the clause is too broad, an employee could probably risk agreeing to it, knowing it could not be enforced, he says.
“When you’re in that situation, it’s a scary thing for the employee to assume it won’t hold up and go and start a competing business,” Hawryliw says, adding that employers typically have deeper pockets than staff members, who could be assessed huge damages should a lawsuit not end in their favour.
Employers can consider a less restrictive approach — a non-solicitation provision, which means the employee can’t solicit the company’s clients for a set period of time, he says.
“Again, it’s not a sure thing, but it’s a bit easier to enforce,” Hawryliw says. “So part of the discussion for the employer is also — Do you want a non-compete or do you want a non-solicitation restriction?”