The Supreme Court of Canada has confirmed that the application and enforceability of restrictive covenants in a contract of employment – such as a non-competition or non-solicitation clause – differ from those found in commercial agreements. In reaching this conclusion, the Supreme Court noted that parties negotiating a commercial agreement have more flexibility than parties negotiating a contract of employment because commercial relationships are generally not characterized by the same imbalance of power that exists in the employer-employee relationship.
To determine whether a restrictive covenant is linked to a commercial contract or an employment contract, the court must identify the reason the covenant was negotiated, taking into consideration the wording of the obligations and the circumstances in which they were agreed upon. The Supreme Court emphasized that reference in a restrictive covenant to termination of employment does not change the essence of the covenant if the obligation was accepted in connection with a commercial agreement and not with a contract of employment.
In the commercial context, restrictive covenants are lawful and must be interpreted in a manner consistent with the intention of the parties and the obligations to which the covenants give rise. Addressing non-solicitation clauses, the Court concluded that while non-competition clauses generally require an identifiable territory, non-solicitation clauses generally do not require any territorial limitation.
The full text of the Court’s decision can be found here.
If you have any questions about the preparation of enforceable employment contracts, or any other questions relating to workplace law, please do not hesitate to contact a Mathews Dinsdale lawyer.
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