A covenant in restraint of trade is considered prima facie (at the get-go) unenforceable. The employer has a reverse onus in unique situations to show the converse. The general tests require the employer shown a genuine business interest worthy of protection and further that the restraints imposed by time and geography are reasonable. A non-compete, for example, which is said to be for a three year period and prevent employment of a competitive nature anywhere in Canada will likely not be enforceable. If however, a company limits the term to six months and a fifty mile radius from the city of employment and can show the legitimate business interest, it is headed in the right direction.

 

Covenants which prevent the solicitation of the employer’s active clientele or pending business opportunities will likely be binding. Similarly a contract which requires the company’s business secrets and confidences be maintained will be readily enforced.

 

The most significant issue is not necessarily whether a non-compete is enforceable, but rather the impact it may have on new employment. The covenant must clearly be revealed to a new employer, who understandably be reluctant to hire a person which will encourage litigation against itself.

 

Employers often attempt to have the terminated employee re-affirm the non-compete term as a condition of receipt of a severance payment. If this is agreed, the non-compete takes on a different chemical composition – it is no longer part of an employment agreement which is prima facie unenforceable – it is now an agreed severance term for which new money has been paid and hence much more readily enforced. The employer may also cease payments when the offer is structured over time when the covenant is violated, and also sue for the return of all prior severance payments. As mentioned elsewhere, the re-affirmation of a post termination covenant cannot be tied to the payment of the statutory sums.