Demystifying restrictive clauses in employment contracts

Did you know that under the Civil Code of Québec, employees have an obligation of loyalty to their employer that continues even after the contract is over? That means that even after leaving a company, employees must not use confidential information regarding that company to benefit another employer or disparage it to its customers, among other things.(1)

Beyond this legal obligation, employers can hold employees to so-called “restrictive” clauses. The headhunters at our recruitment agency regularly provide our clients with guidance in these types of situations. Let’s have a closer look at the two most common restrictive clauses: non-competition and non-solicitation.

Issues

When a company is interested in hiring a new employee, it needs to find out if the candidate is bound by a restrictive clause; otherwise, it runs the risk of:

• Being sued and held liable for helping violate the clause in question
• Being denied the expertise and services for which the candidate was hired

Bear in mind that employees must always inform recruiters of their obligations to their current employer.

Before including a restrictive clause in an employment contract, the employer should consult a lawyer to make sure the clause is justified and limited to only what is required to protect its legitimate interests. If the wording of the clause is too broad or too vague, it could be invalidated in court and the employer is no longer protected. 

Non-competition clause

This is the most common clause. It prohibits the employee from competing with the employer in the same sector and territory for a specified period.(2)

Employers should consider including a non-competition clause in the contract of any employee whose job requires developing privileged relationships with clients, learning about operating methods or obtaining confidential corporate information. The purpose of such a clause might be:

• To protect scientific or technological secrets regarding products or ingredients (such as in the engineering or chemical industries)
• To keep representatives (those in charge of business development, for example) from leaving for competitors and taking their clients with them

Employees who are subject to a non-competition clause have considerably limited career options outside their current employer. When they take the risk of accepting a job with a competitor, they could end up unemployed if their former employer takes them to court.

Non-solicitation clause 

Employees who are subject to a non-solicitation clause cannot solicit their former employer’s clients, employees or suppliers for a specified period.

Employers should consider including a non-solicitation clause in the employment contract of any employee who has access to clients, suppliers and business partners.

Since employees today are given more freedom in their work than previously, courts have been less strict in assessing the validity of this clause. However, the clause must be limited to protecting the legitimate interests of the employer.

Depending on the terms of the non-solicitation clause, candidates might be best off avoiding the territory served by their former employer so as to not risk violating the clause.

Note that the former employer may not sue based on these clauses if the company terminated the employment contract without just cause.(3)

All a question of risk assessment

Here are two real-life St-Amour cases that led to two different results:

1. An industrial product distribution company was seeking a representative with experience in its sector. The candidate found working for a competitor had recently been promoted and was subject to a non-competition clause. After studying the employment contract, a lawyer decided that the risks were too high for the candidate, as he could lose his new job. Although the company was planning to offer the candidate double his current salary, it followed the lawyer’s recommendations and did not make an offer.

2. A medical product and supply company was looking to hire a representative. The potential candidate was working in sales for the competition and his employment contract included a non-solicitation clause. To avoid any legal dispute, it was recommended that the company not send the employee to territories where he had worked for the competitor for the period stipulated in the clause. The company decided to go ahead and make an offer that minimizes the risk of litigation.

As we’ve seen, restrictive clauses come with a number of legal considerations.

Whether you’re an employer or an employee, make sure you seek advice from a lawyer who specializes in employment or labour law. It’s the best way to protect yourself.