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Labor law: Non-compete & non-sollicitation clauses

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The OBLIGATION OF NON-COMPETION is imbedded in article 2088 of the Civil code which provides that the employee is bound not only to carry on his work with prudence and diligence, but also to act faithfully and honestly and not to use any confidential information he may obtain in carrying on or in the course of his work. These obligations continue for a reasonable time after cessation of the contract, and permanently where the information concerns the reputation and private life of another person.

This said, the content, scope and post-employment duration of the duty of loyalty of an employee will vary depending on a variety of factors, such as the nature of the enterprise, the nature, conditions and hierarchical level of the position held by the ex-employee, the duration of the employee’s service with the employer, the reasons for the termination of the contract of employment and the circumstances surrounding said termination and the state of competition in the employer’s field of activity, to name a few.

The period of non-competition should only be applicable for termination with cause.  Indeed, the Civil Code provides, in article 2095, that an employer may not invoke a non-competition clause contained in an employment contract if it has dismissed the employee without a serious reason.

The criteria for the validity of non-competition clauses are codified at Article 2089 C.C.Q., which reads as follows: The parties may stipulate in writing and in express terms that, even after the termination of the contract, the employee may neither compete with his employer nor participate in any capacity whatsoever in an enterprise which would then compete with him. Such a stipulation shall be limited, however, as to time, place and type of employment, to whatever is necessary for the protection of the legitimate interests of the employer. The burden of proof that the stipulation is valid is on the employer.

The courts have consistently refused to “re-write” a restrictive covenant, for example by reducing a time or geographical limit, judged by the court to be excessive, in a non-competition clause which would in all other respects be judged to be valid. If a restrictive covenant is considered to go beyond what is necessary for the protection of the legitimate interests of the employer as to time, place or the type of employment, it will be held to be invalid.

It is worth noting, however, that while the Court will not re-write the contract between the parties, there are cases where the Court has nonetheless given effect to one portion of a restrictive covenant judged, by itself, to be valid, on the basis that it is severable from another portion of the covenant, judged to be invalid.

Temporal limit: As a general rule, restrictions on post-employment competition of a duration of one year or less are held to be valid, as reasonably necessary to protect the interests of the employer. Longer limits require particular justification.

Territorial limit: As a general rule, a clause preventing a former employee from competing with his former employer within the territory where the employee was active during the term of his employment with his former employer will be considered, as to the territorial limitation, to be valid. Territorial limits exceeding the territory where the employee was active will, to the extent of the excess, be increasingly open to question.

Type of employment: As with the territorial restriction, a restriction on the employee exercising the functions he exercised during his employment will normally be held to be reasonable. A restriction on a broader scope of activities, for example the activities of the company rather than the activities of the employee only, may be justified by the importance of the employee to the functioning of the enterprise. In the case of a key employee or an employee holding a high position in the hierarchy of the company, a restriction on a broader scope of post-employment activities may be warranted. However, it would be difficult to justify, in terms of protecting the legitimate interests of the employer, a restriction covering a field of activities broader than those engaged in by the employer.

OBLIGATION OF NON-SOLICITATION OF CUSTOMERS although the conditions for the validity of non-solicitation clauses are similar to those applied when considering the validity of non-competition clauses, they are applied less strictly in the case of non-solicitation clauses because the interest to be protected is less vast and, as a consequence, so is the restriction, which is limited to an identified or identifiable list of clients.

Time limit: article a 12 month time limit, is almost always considered reasonable in the case of a non-solicitation clause.

Territorial limit: There exists some controversy over whether Article 2089 C.C.Q. applies to non-solicitation clauses as well as non-competition clauses. It will be recalled that it is article 2089 C.C.Q. that codifies the three criteria for the validity of non-competition clauses, namely that they must be limited in time, place and the type of employment to what is necessary for the protection of the legitimate interests of the employer.While it is clear that a non-solicitation clause must be limited in time and that there must be a limit as to the clientele or employees protected by the clause, it is less clear whether the third criterion contained in Article 2089 C.C.Q., namely a territorial limit, applies to non-solicitation clauses.

Clientele covered by the clause: Generally, a non-solicitation clause covering the clientele with which the employee has been in contact during his employment will be considered to be a reasonable limitation. This is the clientele with which the employee has presumably been able to develop a privileged relationship over the course of his employ. A clause which goes beyond the clientele with which the employee was in contact during his employment (e.g. potential clients, future clients, etc…) will be open to attack. The restriction is limited to solicitation of an identifiable group of persons.

The previous reasoning also applies to the OBLIGATION OF NON-SOLICITATION OF EMPLOYEES. There again, the restriction is limited to solicitation of an identifiable group of persons.



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