Law THE NON-COMPETITION CLAUSE

Often when an employee is hired he or she is asked to sign an employment agreement or to agree to comply with the terms of employment. These may be extensive or quite brief, but the odds are they will contain some form of non-competition clause. In other words, the employee will be asked to not compete with the employer either during or after employment. A worker certainly cannot object to being asked this because an employer is entitled to expect an employee to spend his or her full time furthering the interests of the employer. In fact, at common law, an employee has a legal obligation not to abuse his/her employer’s confidences. In other words, the law acknowledges that an employer is entitled to expect a certain degree of loyalty from every employee. What additional obligations the employer imposes upon an employee, both during and after employment, are what a lawyer will refer to as “restrictive covenants,” and they are always open to negotiation.

There is a reasonably large portion of the mining industry that is transient. Therefore the restrictions imposed upon an individual by a non- competition clause may be of considerable interest, not only to that individual but also to future employers. Let’s look at some matters that might be considered with respect to these clauses.

The essential ingredients of this type of clause are that it will contain a restriction on the employee usually with respect to a defined activity within a defined area and for a specified period of time. What follows is a look at each of these ingredients:

* Restrictions — The restriction may range from a straightforward statement that the employee will not use the employer’s confidential information for either his/her own benefit or that of a future employer to a sophisticated provision that purports to prohibit the employee from doing any work within a defined area for a specified period of time. In some cases a limit is placed on the right of the employee to participate, financially or otherwise, in any venture that might be considered to compete with the business of the employer.

* Area and Time Period — The area from which the employee is excluded can be virtually any size and the time period during which the exclusion is effective can be any length. Each of them must, however, be reasonable or the courts will not enforce the provision (more on that later). The above seems quite simple. It appears that if an employee, either through ignorance or circumstances (jobs may be few and far between), agrees to an onerous clause, then that’s it. Appearances can, however, be deceiving. As with many other fields, the courts have butted in and established some rules that override the agreement between employee and employer:

— First and foremost, the courts will not enforce a non-competition clause if to do so would prevent the employee from earning a livelihood.

— The restriction must be clear with respect to activity, time and geographical area; and all these factors must be reasonable in the circumstances. If, for example the employee is working on a specific project covering a limited geographical area, then it would probably be unreasonable to attempt to exclude the employee from a large area (say, a province) or to provide for a long exclusion period (say, three years). On the other hand the courts might well consider that it is reasonable to exclude a senior reconnaisance or research geologist from a province for a couple of years — it will depend upon what the employee was doing during employment.

— The courts acknowledge that a professional, such as a geologist, has acquired during the course of his/her career a store of knowledge that is of a general nature, even if it relates to his/her employer’s confidential information. The courts also acknowledge that it is virtually impossible to segregate such store and classify part of it as being subject to the non- competition clause. To put it another way, the courts acknowledge that such a professional may use his/her knowledge to carry on his/her profession and earn a living.

The above should not be taken to mean that an employee may just ignore a non-competition clause. If two parties have an agreement, the courts will be inclined to give that agreement a reasonable interpretation and to enforce it as between parties. The courts will, however, look at all the circumstances, acknowledge a possible inequality of bargaining power between employer and employee, and apply the above rules in light of these factors.

From the employer’s viewpoint, what can be done if an employee with a non-competition clause has left and gone with the competition? Not very much, really, unless “something happens.” One thing that might help before something happens is for the employer to notify the new employer that the employee is bound by a non- competition clause and send along a copy of the clause (but not the whole agreement). This at least puts the new employer on notice and may be of some assistance if there is ever a lawsuit relating to the clause. If the “something” does happen and the employee breaches the non-competition clause, then the employer may have available to him/her a variety of remedies, including injunctive relief, against the former employee.

From the practical point of view, if an employee or former employee acts ethically and in accordance with professional standards, he/she will probably have little to fear from an employer, former employer or the courts. Karl J. C. Harries is a partner with the Toronto law firm Fasken & Calvin. The information in this article is summary and general in nature and is not intended to be taken or acted upon as legal advice.