Non-Competition Clauses and Tech Employees
Recently a good friend of the firm, Sabaa Quao, President and Founder of /newsrooms, tweeted us a great question:
Hey @RonSegev, do you have some Canadian context on this? re: non-compete clauses and movement of tech workers between firms.
— Sabaa Quao (@xsabaa) April 22, 2016
Thanks for the question, Sabaa! Non-competition clauses can arise in a number of different contexts and whether the clause is enforceable often depends in part upon the context in which it arises. Since your question has to do with employment, we’ll share our thoughts on the matter in the context of an employer-employee relationship. The short answer, though, is that in the tech industry, there are better alternatives to non-competition clauses that can benefit both the employer and the employee. Now for the long answer…
Non-Competition Clauses Generally
The general rule in Canada is that non-competition clauses are unenforceable restraints on trade. This is great for employees, but if you’re an employer this may worry you. This worry is well founded, but employers aren’t completely out of luck. As is often the case in law, there is an exception to the rule: If the non-competition clause is reasonable between the parties and reasonable with respect to the interests of the public, a court may find the non-competition clause enforceable. Just what is reasonable between the parties and with respect to the interests of the public is a case-by-case determination for a court to make, so there are no guarantees when drafting non-competition clauses. Nevertheless, there are steps an employer can take to increase the likelihood that their non-competition clause will work as intended.
- Avoid putting any unenforceable language in an non-compete clause. If any portion of the non-compete clause is legally unenforceable, a court is likely to find the entire non-compete clause unenforceable. Courts rarely, if ever, interpret non-compete clauses in favour of the employer. This is because courts are mindful of the power imbalance between employer and employee.
- Remove all ambiguities from the non-compete clause. If anything is unclear, the clause will likely fail the employer if it is ever litigated.
- Specifically define the non-competition clause in terms of geographic scope and time. This tip follows from the requirement that non-competition clauses contain no ambiguities. The clause may need to be more specific than one might expect. For example, in KGR Insurance Brokers (Western) Inc. v Shafron, 2009 SCC 6, the Supreme Court of Canada held that a non-competition clause which restricted an employee from carrying on, being employed in, or being interested in or permitting “his name to be used in connection with the business of insurance brokerage which is carried on within the metropolitan City of Vancouver” for a period of three years to be unenforceable because of ambiguity. Namely, the court found the geographic location “metropolitan City of Vancouver” to be ambiguous and was not prepared to interpret the clause in a manner that would have resolved the ambiguity. Consequently, the non-competition clause was found unenforceable to the detriment of the employer and the benefit of the employee.
- If a non-solicitation clause could sufficiently protect the interest intended to be protected by the non-competition clause, use a non-solicitation clause instead. Courts are more likely to enforce non-solicitation clauses than non-competition clauses. Furthermore, where a non-solicitation clause would have sufficed but a non-competition clause was actually used, courts are even less likely to enforce that non-competition clause.
- Non-competition clauses should protect a legitimate interest of the employer and no more than that. Typically, a non-competition clause that completely prevents an employee from practising their profession or using their skills in a geographic area will be unenforceable. Courts are likely to find that the legitimate interests of the employer could be protected by a less restrictive clause.
Given all of these strict rules, and high likelihood of unenforceability, what is an employer to do to protect its legitimate business interests? First, don’t completely lose hope in non-competition clauses. They wouldn’t exist if they didn’t work at least some of the time. By relying on a lawyer who has experience drafting non-competition clauses, you can increase the likelihood that your non-competition clause will be enforced. And second, have a back-up plan. More often than not, a non-solicitation clause can sufficiently protect the legitimate business interest you are attempting to protect with your non-competition clause. Non-solicitation clauses also find much more success in courts. That is to say, courts are more likely to enforce non-solicitation clauses than non-competition clauses. So if your non-competition clause fails, a properly non-solicitation clause is a great fallback. Perhaps an even better fallback is a confidentiality and proprietary information agreement. A confidentiality and proprietary information agreement is a great tool to for tech employers/employees to consider as it can balance the interests of both parties to the employment relationship better than most, if not all, other “breakup” contractual provisions.
Movement of Employees Between Tech Firms
A non-competition clause just isn’t the best tool to protect a tech firm that is worried about their employees joining another firm and sharing insider information. Courts have held that companies do not have a proprietary interest their employees’ skills and experience. Generally speaking, individuals are free to earn a living in their field of competence and an employer can’t limit that right through a non-competition agreement. These facts limit the utility of a non-competition clause. Furthermore, a non-competition clause may scare off high quality candidates.
Instead, tech firms should consider using confidentiality and proprietary information agreements to protect their confidential information, proprietary information, and trade secrets. This is a great tool because it benefits both parties. It protects the legitimate business interest of the tech firm through the protection of their proprietary information, and it allows tech employees to continue to practice their profession even if they leave their employer.
Suffice it to say, in the tech industry, and in others, there are ways to protect interests of both the employee and the employer upon the breakdown of the employment relationship. If you’d like to know more about how this can be done, or if you’d like to know more about non-competition clauses, non-solicitation clauses, or confidentiality and proprietary information agreements, feel free to contact one of the lawyers at Segev LLP and we’ll be happy to help.
The above is not legal advice and should not be relied upon as such. Always contact a lawyer before drafting a non-competition clause or any other legal document. For more information, contact us at [email protected].