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A recent Ontario Superior Court decision will provide useful guidance in “assessing the reasonableness of a restrictive covenant that appears in an employment agreement, but that was connected to the sale of a business,” says Toronto employment lawyer Allison Greene.
In Martin v. ConCreate USL Ltd. Partnership, Justice Paul Perell dismissed an application by former employee Derek Martin for a declaration that the non-competition and non-solicitation covenants in favour of his former employer were unenforceable, Canadian Employment & Pension Law blog reports. Read Canadian Employment & Pension Law
The judge decided that the agreements, which were signed in connection with a sale of a business for which Martin received consideration, were reasonable and enforceable. Read Martin v. ConCreate USL Ltd. Partnership
“The general rule is that restrictive covenants are contrary to the public interest, and therefore unenforceable, unless they can be justified as reasonable,” says Greene, partner with Karimjee Greene LLP. “Here, the court has now provided a comprehensive analytical framework to evaluate whether a restrictive covenant is enforceable, having regard to the particular facts of a case.”
Greene says the outcome of the case is not surprising, given that the court determined the restrictive covenants were connected to a sale or a commercial contract – even though they were found in an employment agreement.
“Restrictive covenants found in employment agreements are usually subject to a more rigorous analysis of reasonableness due to the employee’s limited bargaining power,” she says. “When such covenants are connected to sale of a business, the court recognizes there is typically more freedom of contract in contracts between a buyer and seller than between an employer and employee. For that reason, the court will often show deference to the contractual autonomy of the parties and be more reluctant to interfere with the deal that they’ve made.”
Another interesting aspect to the case is that, although not specifically raised by either party, the court referred twice to what’s known as the General Billpostings rule, which provides that an employer may be precluded from enforcing a restrictive covenant if it dismissed the employee without cause and without notice, says Greene.
“If the employee in this case advances this argument at trial, it will be interesting to see how the court applies the rule in this particular context,” says Greene.