Restrictions on restrictive covenants

In today’s competitive business environment, business owners are constantly looking for an edge over the competition. To obtain that edge...

by Doug Lester

Contributor

In today’s competitive business environment, business owners are constantly looking for an edge over the competition. To obtain that edge, they look for the most skilled employees in the work force, and at times they try to restrict the ability of key employees from going to work with competing employers.

Agreements like this are called “restrictive covenants” and are created to protect the employer’s interests against employees who generate goodwill with customers or clients, and then take that goodwill with them to their next job.

The law recognizes a restrictive covenant can be enforceable in Canada as long as it is not unduly restrictive or oppressive. What is unduly restrictive or oppressive has been commented upon by the courts on many occasions. A recent decision in Alberta may have implications for B.C. employees and employers alike.

In a case called Globex Foreign Exchange Corporation v.  Kelcher, the employer sought to enforce its restrictive covenant upon its former employee.  However, Globex had fired its employee, without just cause, giving rise to a “wrongful dismissal.”

The judge from the Alberta Court of Appeal said wrongful termination will render a restrictive covenant unenforceable, and “there are valid reasons for excusing a wrongfully dismissed employee from compliance with restrictive covenants. To hold otherwise would be to reward employers for mistreating their employees. For example, an employer could hire a potential competitor, impose a restrictive covenant on the employee, then wrongfully dismiss her a short time later and take advantage of the restrictive covenant. This would be a highly effective, but manifestly unfair way of reducing competition.”

Another aspect of the Globex case was that it had forced some employees to sign their restrictive covenants during the course of their employment, rather than when they were first hired.

The court found that these employees were effectively told to either sign the agreements or resign. Even though at least one of those employees continued to work at Globex for some time after he signed the covenant, the court concluded that this was not enough to make the agreement valid. The court explained that the promise to continue someone’s employment does not, by itself, amount to justification for such an agreement, because the employer is already required to continue the employment until proper grounds exist for termination.

The reasoning behind the Globex decision is detailed and well-reasoned and, although it is not binding on courts in B.C., decisions in cases from other provinces are often followed in this province.

Before entering into a restrictive covenant arrangement, employers and employees should consult with an employment lawyer to make sure their interests are protected.

Doug Lester is a partner with RDM Lawyers.

legalease@abbynews.com

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Keith Carlson, chair and director of the Peace and Reconciliation Centre at Univeristy of the Fraser Valley.
UFV hosts online session about interpersonal violence

Peace and Reconciliation Centre in Abbotsford holds discussion on Thursday, Jan. 21

An Abbotsford man was killed in a motor vehicle accident on Highway 3 on Monday, Jan. 18. (Black Press file photo)
Abbotsford man killed in Highway 3 crash near Hedley

Fatality was discovered by passing tow truck driver

Mackenzie Ashley-Lynn Gilfillan was last seen Jan. 10 in the 45000-block of Menholm Road. (RCMP photo)
RCMP asking for help to find missing Chilliwack woman

Mackenzie Ashley-Lynn Gilfillan was last seen Jan. 10 in the 45000-block of Menholm Road

Abbotsford Recreation Centre is among the local arenas that are part of an in-depth review and analysis by the city. (File photo)
City of Abbotsford conducts survey on six local arenas

Input is part of in-depth analysis of current and future needs

A warrant was issued for Darwyn Sellars, 31, on Nov. 4, 2019, according to Black Press. (CrimeStoppers)
B.C. man’s rack of charges include Abbotsford and Williams Lake offences

Sentencing delayed against Darwyn Sellars, who pleaded guilty to lengthy list of charges

Provincial health officer Dr. Bonnie Henry prepares a daily update on the coronavirus pandemic, April 21, 2020. (B.C. Government)
B.C. adjusts COVID-19 vaccine rollout for delivery slowdown

Daily cases decline over weekend, 31 more deaths

(Realtor.ca)
Rent dropped to 2019 rates across parts of Metro Vancouver in December: Rentals.ca report

Rent costs have declined since May, a trend expected to continue due in part to the COVID pandemic

A female prisoner sent Langford police officers a thank-you card after she spent days in their custody. (Twitter/West Shore RCMP)
Woman gives Victoria-area jail 4.5-star review in handwritten card to police after arrest

‘We don’t often get thank you cards from people who stay with us, but this was sure nice to see’: RCMP

An elk got his antlers caught up in a zip line in Youbou over the weekend. (Conservation Officer Service Photo)
Elk rescued from zip line in Youbou on Vancouver Island

Officials urge people to manage items on their property that can hurt animals

A Trail man has a lucky tin for a keepsake after it saved him from a stabbing last week. File photo
Small tin in Kootenay man’s jacket pocket saved him from stabbing: RCMP

The man was uninjured thanks to a tin in his jacket

Tla-o-qui-aht First Nation Chantel Moore, 26, was fatally shot by a police officer during a wellness check in the early morning of June 4, 2020, in Edmundston, N.B. (Facebook)
Frustrated family denied access to B.C. Indigenous woman’s police shooting report

Independent investigation into B.C. woman’s fatal shooting in New Brunswick filed to Crown

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Delta Police Constable Jason Martens and Dezi, a nine-year-old German Shepherd that recently retired after 10 years with Delta Police. (Photo submitted)
Dezi, a Delta police dog, retires on a high note after decade of service

Nine-year-old German Shepherd now fights over toys instead of chasing down bad guys

Most Read