Navigating the Playing Field: Knowing Your Rights in a Non-Compete or Non-Solicitation Contract Clause
Increasingly common in employment contracts are non-competition clauses (also known as a ‘non-compete’) and non-solicitation clauses (‘non-solicit’). Either when signing a contract for employment, or during the course of an employment contract, an employer may ask an employee to sign either of these clauses. What are the limitations placed by non-compete and non-solicit clauses? As an employer, how do you best devise a contract that will legally protect you? As an employee, what should you know before signing away your legal rights to conduct business post-employment with the firm? How enforceable are these clauses?
As an employee, a non-competition clause may restrict your ability to directly compete with your previous place of employment for a specified amount of time. Often, non-competes are restricted to a specific location (such as a city or town, but not an entire province) and within a particular time frame (usually limited to six months or less).
A non-solicitation clause can restrict the employee from soliciting the employer’s staff for clients either during or after the period of employment. Non-solicit clauses are also typically restricted to a specific region and time frame. The difference between non-competes and non-solicits are their scope. Non-competition clauses limit the access to the industry in a specific region whereas non-solicitation clauses more narrowly limit to clients of the firm.
How enforceable are non-competition and non-solicitation clauses? The enforceability may be dependent on several factors. How was the clause entered into? An employment contract is only enforceable if both the employer and employee receive “consideration”. Simply put, if both the employer and employee “get something” from the contract. The benefit may be a job if the contract was entered into upon hiring or may be an additional benefit if the contract changes throughout the course of employment. There may be a case of lack of consideration, rendering the employment contract invalid, if the contract was imposed partway through the employment without any new benefits offered.
The courts tend to uphold the contract post-employment if the employer can prove that these restrictions are truly necessary to protect the business. However, courts can decide not to enforce these restrictive clauses if they are too broadly defined. Examples could include too wide of a geographic scope or vague prohibitions (versus precise and specific exclusions).
Navigating the competitive playing field after leaving a previous place of employment may be tricky, especially with a non-compete or non-solicit clause. Similarly, as an employer, you may be wary of past employees entering into your competitive market with your business insights. To save yourself from entering into this grey zone as either an employer or employee, it is best to contact a qualified employment lawyer, such as the lawyers at SHIRTLIFF HINDS LAW. The skilled and passionate lawyers at Shirtliff Hinds Law will be able to help either employees or employers to ensure a fair employment contract.
This blog post offers a general overview. The blog should not be taken as legal advice nor should the blog be used for sole legal decision making.