Definition and Types of Restrictive Covenants
In the employment context, restrictive covenants are most commonly found in employment contracts. Courts have held that restrictive covenants are presumptively unenforceable on the basis that they are considered a restraint of trade contrary to public policy. However, restrictive covenants will be enforceable in certain circumstances.
An employee whose position involves a significant authority and responsibility may be a “fiduciary”, and consequently have an obligation at common law to refrain from competing with or soliciting the customers or employees of the employer for a reasonable period of time after employment termination.
The following restrictive covenants are recognized and may be enforceable under the law:
- Non-compete clauses;
- Non-solicitation of customers;
- Non-solicitation of employees.
Enforcement of Restrictive Covenants—process and remedies
An employer who wishes to enforce a restrictive covenant will generally seek an injunction from a court due to the time-sensitive nature of the issue. Courts have generally recognized that the diversion of customers to a competitor may have irreversible consequences to a business. However, a court will not grant injunctive relief unless the applicant is able to demonstrate a strong prima facie case that the terms of the restrictive covenant is reasonable, and that the defendant is in fact engaging in activities that breach the restrictive covenant.
Use and Limitations of Garden Leave
Garden leave is fairly uncommon in Canada, although some employers have begun to view garden leave as a viable alternative to restrictive covenants which are notoriously difficult to enforce. In the absence of any contractual provision contemplating that an employer may remove some or all of an employee’s job duties, there is some risk that an employee placed on garden leave may claim that he or she has been constructively dismissed, and therefore entitled to treat the employment relationship as severed, and immediately begin seeking other employment.