'You Compete Me' – Will The Courts Love Your Company’s Restrictive Covenants For Employees As Much As You Do?

An area of law where both employers and employees often struggle to find clarity is the area of restrictive covenants, specifically non-competition and non-solicitation clauses for employees. Part of the reason for frequent confusion is that this area of law - and specifically whether and how a non-competition or non-solicitation clause is enforceable - tends to be very fact-specific. While these types of clauses will tend to have some standard elements, the factual scenarios in which they typically unfold in litigation tend to be somewhat unique from one another. It can therefore be challenging to predict precisely when these clauses will be enforced by the courts. That said, there are some basic aspects of this area of law that merit review, because it is important that employers be mindful of them and consider whether the clauses they are using should be reviewed or updated.

Restrictive covenants protect an employer's interests and relations with its clients, customers, suppliers and employees from being exploited by current or former employees. They generally take two forms: (1) non-competition clauses, which restrict the former employee from going into business that competes against the former employer for a period of time; and (2) non-solicitation clauses, which prohibit the former employee from actively soliciting business from former clients or customers, or soliciting the employer's other employees to join them in new employment.

The general common law rule is that all restrictive covenants are contrary to public policy and void because they are a restraint of trade. However, over time the courts have relaxed this rule. A restrictive covenant will generally be enforced if it is reasonable as between the parties and in accordance with the public interest, considering the: (1) scope of activity, (2) geography, and (3) duration of the prohibition. Non-competition or non-solicitation clauses that are too broad in one or more of those three areas will be considered unreasonable and unenforceable.

We often see employers taking a "one size fits all" approach when they draft their restrictive covenants - for example, using the same scope of activity, geography and duration for an entry level position in one area of the business as they do for a higher level management position in a different area. This can be one of the pitfalls of using standard form employment contracts without duly considering the individual circumstances of each...