Q: I farm, but until recently I also worked as a salesperson for an agricultural supplier. I was unhappy so I quit and moved to the competition, and I am getting a better commission on my sales.
However, my old company has written to the new boss, threatening to sue because of a clause in my old contract. What’s going on?
A: In all likelihood, you signed an employment contract when you started with your previous employer. It probably contained a non-competition clause, which your former employer is trying to enforce against you and your new employer. The real question is: can they do this?
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In discussing this type of contract, please note I am not referring to a collective bargaining agreement signed in the context of a union shop. This is something different.
Employment contracts are private contracts signed directly between an employer and each of its employees. They don’t all have to be the same. Frequently they are different to accommodate different jobs within the company.
These agreements contain all sorts of clauses, most for the benefit of the employer. For example, you will often see “trade secrets” clauses, which employers use to insist that anything employers learn must stay private and cannot be shared with anyone else. This is to protect the employer’s trade and business secrets, which are usually valuable and have been built up over time. Those sorts of clauses have proven to be enforceable.
You are likely talking about a “non-competition” clause in your employment agreement. These clauses usually try to restrict the employee when he quits or is fired.
These clauses will often say you cannot work for any competitor in the same (or substantially the same) business. They sometimes limit this to a geographic area, especially if it is a locally owned business.
However, if it is a provincial or national chain, there may be no limit and the agreement may try to prevent you from working for the competition anywhere it operates.
As well, client lists, contact information, pricing guides and sales literature are usually cited as being private and confidential, and the departing employee is prohibited from using this information.
Often these agreements are not enforceable.
Our courts have traditionally allowed people to enter into any type of contract or bargain they wish, as long as the bargain is not illegal and is enforceable. One major exception is contracts in restraint of trade or business. Courts have seen these as being contrary to public policy because they try to restrict someone from earning a living.
Last year, the Supreme Court of Canada ruled on such a case involving a national investment firm. The branch manager and all the key brokers quit at the same time and went to work for a competitor, also a nation-wide business. Evidence clearly showed the manager made significant efforts to take staff with him.
The Supreme Court said the manager was wrong in doing that, and found he had a duty to make reasonable efforts to keep the staff for his first employer. A manager has a duty to act in good faith toward his employer, and this one hadn’t.
However, the Supreme Court refused to give the first brokerage any money for damages or losses. It said people were generally free to work for whom they wished. The court allowed only damages for their failure to give reasonable notice of departure. It further suggested that any restrictions had to be part of an expressed contract not to compete.
To be enforceable, such clauses have to be reasonable as to which area of the province they apply to, and should be time limited. If not, they may not be enforced.
Your former employer likely will have trouble enforcing this against you or your new firm. Courts don’t like these clauses and will often side with the departed employee.
Rick Danyliuk is a practising lawyer in Saskatoon with McDougall Gauley LLP. He also has experience in teaching and writing about legal issues. His columns are intended as general advice only. He can be reached at thelaw@producer.com.
