Employees often have access to confidential business assets and information and have the ability to do damage to the business after they leave. There are several forms of agreements which can be used to reduce the potential harm when key employees depart.
Non-competition agreements are designed to prevent an employee from competing with an employer for a period of time following termination of employment. This type of agreement provides the most protection for an employer; however, recent court decisions suggest that many employers will have difficulty enforcing non-competition obligations. Certain non-competition agreements are a restraint on trade and unenforceable. Courts are also concerned that a non-competition agreement could prevent a former employee from earning a living.
A non-competition agreement will be justified where the restrictions are as limited as possible and there is no other way to protect the legitimate legal rights of the employer. Decisions in Ontario and Alberta suggest that the courts will not enforce a non-competition agreement where a lesser measure (such as a non-solicitation agreement) would be sufficient to protect the employer. The courts will also refuse to enforce a non-competition agreement where the time or geographical scope of the agreement is overly broad. Depending on the circumstances, a non-competition agreement of 12, 18 or 24 months may be justified. An agreement which prevented competition by a former employee for 5 years would likely be unenforceable.
The geographical scope of non-competition agreements cannot be too broad. If all of the employee’s work fell within the City of Saskatoon for example, an agreement preventing competition in Saskatchewan, Western Canada or Canada could be deemed unfair and unenforceable by a court. Court decisions suggest that a non-competition agreement which has no temporal or geographic limitations at all will be unenforceable.
Non-solicitation agreements are used to protect business relationships with customers and personnel. For example, a salesperson who develops client relationships on behalf of an employer may have an unfair advantage if permitted to resign and immediately seek that business on behalf of a competitor. Similarly, no business would like to see a manager resign and immediately recruit her former colleagues on behalf of a competitor.
Non-solicitation agreements can provide a business with a period of time where the employee is prevented from soliciting its clients or employees. This gives the business some time to replace the departed worker and attempt to solidify relationships with customers and/or employees. The departing employee is not completely barred from competing and may advertise to the world at large, but cannot directly solicit the clients and/or employees of the prior employer.
Non-solicitation agreements are usually less restrictive than non-competition agreements, so courts are less likely to set them aside as a restraint on trade. Nevertheless, non-solicitation agreements must be precisely drafted and periodically reviewed to ensure that their terms remain enforceable.
Intellectual Property Agreements
Key employees have access to all sorts of confidential and proprietary information. For instance, an engineer who is forming a bid on behalf of an employer’s construction tender gains information regarding the employer’s costs, profit margin, and other matters. The engineer could join a competitor and submit competing bids on similar projects using the inside information. An intellectual property agreement can compel an employee to return all copies of proprietary information in paper or electronic form and prevent the employee from using that information to the detriment of the former employer.
The ownership of intellectual property can be difficult to determine. For example, where an investment broker chooses to depart his firm in favour of a competitor, who has proprietary rights over the client files or client lists? An IP agreement could help solidify the employer’s claim to the ownership or custody of the files and lists. Ownership of patents and inventions is another issue which can be addressed by an IP agreement. In the absence of a clear written agreement, a dispute could develop with an employee as to ownership of IP developed by that employee during the course of employment. An IP agreement can help preserve the employer’s claim to the property.