Yahoo Finance That non-compete clause you signed may not be binding after all
It’s not unusual these days to be asked to sign a non-compete clause when taking on a new job. Employers use them to protect themselves from losing clients to employees who decide to leave the firm. For instance, a consultancy or law firm might use one to stop a star from walking out the door, taking her clients with her and setting up shop across the street.
But non-competes can also pop up where you wouldn’t expect them. In 2014, for instance, U.S. sandwich shop chain Jimmy John’s asked counter staff to sign a clause preventing them from working at a competitor’s for two years after leaving the chain.
Now if signing a non-compete is the difference between getting and not getting a job, there’s a good chance you’re going to do it even if you’d rather not. But doing so can impact your ability to move on after leaving a job, particularly if leaving the job wasn’t your idea. So it’s fair to wonder whether these clauses are universally enforced, or is there some leeway?
Happily for employees, Canadian courts tend to evaluate non-compete clauses on the question of whether or not they’re reasonable, rather than taking a blanket approach. They tend to not enforce clauses deemed too restrictive, and frown on the idea of restricting someone’s employment prospects unless there’s a really strong case to do so. So apply for that sandwich artist position with no fear.
“What is ‘reasonable’ depends on the nature of the industry,” Ottawa firm SullivanLaw says on its website. For instance, a dentist may be prevented from working in an office in the same neighbourhood as a previous employer for a certain number of years after leaving, but a software developer may be restricted from a larger geographic area.
According to international law firm Norton Rose Fullbright, Canadian judges look for a series of conditions that must be satisfied in order for a non-compete clause to be considered binding.
Norton says the clause must be limited in both time and geography, and also to what is necessary to protect the employer’s legitimate interests. It must also cover clearly defined work, so it doesn’t function as a sort of blanket suicide pill for anyone thinking of leaving the company.
As well, the agreement must be signed at the beginning of the job. If your boss demands that you sign it after you’ve started the job, chances are high that it will never been enforced.
That’s the Canadian system, but it varies by country and region. If you go to the U.S., the laws change state to state, and many states enforce them. A few don’t, such as California, which basically bans them.
Similar but different are non-solicitation contracts, which are kind of a halfway non-compete. They don’t restrict where you can work, but they prohibit you from trying to bring along former clients for a defined period of time. Canadian courts tend to be more likely to enforce these, as they’re smaller in scope and less likely to unnecessarily impede someone’s employment prospects. So you can open a law firm down the street, but you need to start from scratch on your client list.
