Non-Compete Clauses in British Columbia

Non-competition clauses are a type of restrictive covenant found in employment agreements that, in essence, are designed to prevent employees from entering into or starting a similar profession or trade in competition against their former employer. Absent a non-competition clause, there is nothing standing in the way of an employee from taking a business built up by their employer and using the contacts and knowledge they’ve gained working for that employer and opening up their own competing business. This is something that, clearly, employers are keen to avoid, and one of the most common ways to do this is by utilizing non-competition clauses in their employment agreements.

While the purpose of non-competition clauses is to protect the employer’s business interests, it’s essential to strike a balance with the employee’s right to earn a living after they have moved on from that employment. Non-competition clauses are often used for employees who have access to proprietary information (for example engineers, product designers, etc.), employees with direct access to significant clients (for example sales representatives or portfolio managers), and executive employees, amongst others.

Are Non-Compete Clauses Enforceable in British Columbia?

In British Columbia, the Courts have historically been skeptical about enforcing non-competition agreements, as they are a restraint of trade. As per the legal principles established through case law, any such restraint is prima facie voidable unless it can be justified as reasonable. The onus is on the employer to prove that a non-competition clause in an agreement is reasonable. As to what is considered reasonable, the Courts will usually look at the following considerations:

  • Is the Non-Competition Clause Clear & Unambiguous: Non-competition clauses are required to be clear and unambiguous so there is certainty to the subject matter. Any questions as to the intent or application of a non-competition clause will only increase the chances of it being unenforceable.
  • Nature of the Prohibited Activities: Non-competition clauses must clearly list the nature of the activities which are alleged to be prohibited by the clause. If a non-competition clause is too broad and overreaching this increases the likelihood that it will be unenforceable.
  • Geographic Scope: A non-competition clause should have reasonable geographic boundaries that it applies to in order to be enforceable. If it applies to all of British Columbia, or even Canada, then an employee would be forced to relocate their home to be able to earn a living, which would likely run afoul of the Courts and lead to such a clause being unenforceable.
  • Duration of Limitation: In order to be enforceable a non-competition clause should have a set limit on the duration for which it would apply to a former employee. A non-competition clause that asserts to restrict a former employee in perpetuity is unlikely to be enforceable. An appropriate timeline is highly dependent on the particular circumstances surrounding employment and the particular industries in which one is situated.

Generally speaking, the reasonableness of a non-competition clause is generally assessed based on the nature of the job, the employee’s access to confidential information, and the extent of the employee’s dealings with clients directly. If the restrictions are broader than necessary to protect the employer’s legitimate business interests, the non-compete may be deemed unenforceable by the Courts.

Non-Solicitation: an Alternative to Non-Competition Clauses?

In many cases, employers may find it more beneficial to use non-solicitation clauses, instead of non-competition clauses, to protect their business interests. Non-solicitation clauses prohibit former employees from soliciting clients, customers, or employees of their former employer. These agreements tend to be viewed more favourably by the Courts as they are often less restrictive than non-competition clauses and do not limit a past employee’s future employment prospects. By limiting a past employee’s ability to “poach” their clients or employees, non-solicitation clauses can be an effective means to protect an employer’s interests while also allowing an employee to continue earning a living.

Non-Competition Clauses in Other Jurisdictions

While this post addresses how non-competition clauses are treated in British Columbia, other jurisdictions have laws and legislation that approach this area differently. In the United States of America, the Federal Trade Commission banned non-competition clauses nationwide. Similarly, Ontario has forth legislation that bans non-competition clauses in that province.

While there is no indication that Canada is headed for a nationwide ban on non-competition clauses, it remains to be seen how the federal and provincial governments of Canada will address the area going forward.

Practical Tips for Employers and Employees

For employers, it’s crucial to draft non-competition clauses in a way that adequately protects your business without overstepping the mark. Be as specific and clear with the language of the non-competition clause and ensure that it is as limited as possible in duration, geography, and scope. It should never apply more than is required to protect your legitimate business interests. Employers should always consider whether a non-solicitation agreement would be sufficient to protect their interests in the circumstances.

For employees, it’s essential that you understand the implications of signing an employment agreement with a non-competition clause. Consider seeking legal advice to ensure the agreement is fair and reasonable. Remember, signing an excessively restrictive agreement could significantly limit your employment opportunities in the future and possibly lead to litigation which can be time-consuming and costly.

Experienced Employment Lawyers

Non-competition clauses and their enforceability is a complex issue and continues to be a contentious area of employment law in British Columbia. In order to understand your rights or obligations under an employment agreement with a non-competition clause you will need an experienced employment lawyer to review the agreement and the particular facts and circumstances of your case.

Contact the experienced employment lawyers at Taylor & Blair LLP today to schedule a consultation.