Non-Competition Clause May Increase Reasonable Notice Period

A recent decision from British Columbia is the latest in a small number of cases that have considered the impact of a non-competition clause in an employment agreement to the plaintiff's ability to find alternative work and ultimately the length of the reasonable notice period awarded at trial.

In Ostrow v. Abacus Management, 2014 BCSC 938 (CanLII), the plaintiff, a specialist in international and U.S. tax, had been employed with Abacus for five months at the time of the termination of his employment. Prior to that, he had served as a consultant for a related entity for approximately nine months. During the contract negotiation discussions, the court found that the plaintiff had successfully negotiated out of the contract a termination provision providing him with only the minimum standards under the applicable employment standards legislation and that he had received various assurances about job security. The plaintiff's contract also included a six month non-competition covenant. The plaintiff mitigated approximately 16 months after his termination.

In considering the length of the applicable reasonable notice period, the court considered the impact of the non-competition provision, noting the following:

[79] There is a surprising lack of jurisprudence on the relationship between a non-competition clause in the employment contract and the length of the reasonable notice period. However, this issue has been dealt with at least once by the British Columbia Court of Appeal, in Watson v. Moore Corporation Ltd., [1996] B.C.J. 525 (C.A.) [Watson] and in some Ontario cases .... Despite the lack of cases on this point, there is consistency among them: a non-competition clause in the employment contract is a factor which may increase the length of the reasonable notice period.

Relevant to the court's determination in this case was Abacus' conduct post termination, which included the fact that Abacus gave the plaintiff a letter reminding him of his obligations to the company arising from the non-competition clause in his contract. Accordingly, the court concluded that it was reasonable for the plaintiff to have believed that he was bound by the clause regardless of whether Abacus had enforced such agreements in the past or would do so in his own case. As a result, the court dismissed Abacus' argument that the restrictive covenant should not be taken into account because Abacus did not seek to enforce it.

The court went on to find that the...