Non-Compete Clauses in Employment Contracts: What BC Employers and Workers Need to Know

When entering into a new employment agreement, it can be easy for employers and employees to skip over the details of an employment contract or, worse still, agree to terms without completely understanding what’s within their rights and interests. Sometimes, employers unknowingly include clauses that are either unenforceable or no longer reflect current labour laws. One such example is the use of non-compete clauses in employment contracts. Here’s what BC employers and employees need to know about them.

Non-Compete Clauses: What They Are and How They’re Used

While widely debated, non-compete clauses are provisions sometimes included in employment contracts to dissuade or restrict employees from working for competitors or starting a similar business for a specified period after leaving an employer. In some instances, employees will sign an employment contract that contains a non-complete clause and only become concerned with it after they leave their job or once the employer terminates their position. The courts typically view non-compete clauses as contrary to public policy because they can unfairly limit an individual’s ability to earn a livelihood. However, in British Columbia, non-compete clauses can be enforced if certain specifications are met. 

General Non-Enforceability

The primary reason for the non-enforceability of non-compete clauses in British Columbia is that they may be seen as overly restrictive. If non-compete clauses were generally enforceable, companies could potentially abuse the clause and limit their competition by preventing skilled workers from securing future work with competitors within the same industry. This is especially true regarding non-compete agreements that are overly restrictive, unclearly written and poorly defined, such as the 2009 Supreme Court case between a Vancouver insurance agency and its former employer.

Fortunately for employees, courts are reluctant to enforce any contractual term that unduly hampers an employee’s ability to work and earn income. This stance aligns with the broader legal principle of freedom of trade, which seeks to ensure that individuals can move freely between jobs and that businesses cannot unduly restrict competition.

What Employers Cand Use Instead Of Non-Compete Clauses

It is only fair that employers may be concerned about employees with skills, “trade secrets,” and valuable experience they acquired on the job benefiting or becoming their direct competition. Fortunately for employers, there are other provisions in BC that can help protect their interests without unfairly hindering their employees.

For example, non-compete clauses are often found to be unnecessary if other, less restrictive measures can adequately protect the employer’s interests, such as non-solicitation clauses. Non-solicitation clauses, which prevent former employees from poaching clients or staff, are generally more enforceable because they are considered less restrictive on the employee’s ability to work.

How Non-Compete Clauses in Employment Contracts May Be Enforceable

For a non-compete clause to be enforceable, it must be reasonable in terms of duration, geographic scope, and the interests it seeks to protect. The clause must also be clearly defined and not broader than necessary.

1. Not Overly Broad or Restrictive: Non-compete clauses that are not overly broad or restrictive are more likely to be considered by the courts. For example, a non-compete clause should be reasonable and clearly defined in scope, duration, geographic coverage, which specific actions and activities it wishes to limit, and potential consequences, including monetary retribution, the employer may seek if the clause is breached.
2. Compensation: In some cases, clearly defined and reasonable non-compete clauses may be considered enforceable if the employee accepts monetary compensation in exchange for agreeing to the terms, as illustrated in this case between a Vancouver real estate license tutor and their former contractor.
3. Executive Positions: Non-compete clauses are more likely to be enforced for high-level executives or key employees who have access to sensitive information, trade secrets, or significant client relationships. The rationale is that these individuals could cause substantial harm to the former employer if they immediately join a competitor.
4. Specialized Industry: In highly specialized industries where knowledge and skills are not easily transferable, non-compete clauses may be deemed reasonable. For example, in industries involving unique technology or proprietary processes, restricting an employee from joining a competitor may be justified.
5. Customized Agreements: Clauses that are specifically tailored to the individual circumstances and are not boilerplate provisions have a higher chance of being upheld. Courts often look favourably on agreements that demonstrate a balanced consideration of both the employer’s protection and the employee’s right to work.
6. Under Lawful Conditions: Even if the above conditions are satisfied, non-compete clauses are rarely enforceable if an employee is wrongfully dismissed.

Practical Considerations

Employers who decide to include non-compete clauses in employment contracts must draft them precisely, ensuring they are reasonable and justifiable. Consulting with legal professionals to create narrowly tailored agreements can increase the likelihood of enforceability. For employees, understanding the implications of signing a non-compete clause and seeking legal advice before agreeing to such terms is essential.

If You Have Questions, We Can Help

If you’re an employer or employee in British Columbia and have questions about your rights or other business laws and obligations, our Employment Law Specialists at Spraggs Law are here to help. Please don’t hesitate to contact us at (604) 359-1618 or online today.

Please note: This article does not contain legal advice. If you would like advice on your specific situation, please contact Spraggs Law.