On a regular basis, restrictive covenants in employment contracts are not upheld by courts as they are deemed to restrict the employee’s ability to make a living. Due to this, employers are forced to be more cautious about the restricted periods, and specifics of these covenants.
In the recent case of Rhebergen v. Creston Veterinary Clinic Ltd, the employee signed an employment contract in which she agreed to pay a certain amount of money to her employer if she set up her own practice in the same town as the defendant, or within 25 miles of the defendant’s premises, within the first 3 years of the termination of the contract. She agreed that if she did so within 1 year, she would pay $150,000; if within 2 years, $120,000; and if within 3 years, $90,000. This arrangement was a bit unconventional but very specific.
While the court did not see this as a standard non-competition covenant, it did see it as reasonable and purposeful and it was upheld. Based on this outcome, it is important for employers to know that any precedence which has been set does not limit their ability to implement these covenants in employment contracts, but rather maps out how to state the restrictions in a reasonable, rational way. The main things to consider are:
- The period of time – what is reasonable and what are the effects to the employer’s business?
- Which clients does it relate to – all or those who the employee had direct contact with in a certain period of time?
- What are the repercussions – should financial liability be outlined based on how it may affect the business?
These considerations may lead to more restrictive covenants being upheld in the courts and a greater level of protection to the employer’s business.
Samantha Kirby / Team Lead, HR Services / PEO Canada