Restrictive covenants are commonly included in employment contracts. Many employers require employees to sign these clauses at hiring, promotion, or termination. In this post, we’ll look at 5 important things you need to know about restrictive covenants in Alberta.
1. What are restrictive covenants in Alberta employment law?
Restrictive covenants are legally binding clauses that protect the business interests of the employer by placing formal trade restrictions on the employee. There are 3 main types of restrictive covenants in Alberta:
- Non-competition agreements
- Confidentiality or non-disclosure agreements
- Non-solicitation agreements
A non-competition agreement prevents an employee from competing with the employer during and after the employment relationship by restricting where and for whom an employee may work. It limits the employee’s ability to find work with specific employers, within a specific geographic area, or in a specific industry.
This is a more difficult clause to enforce than a non-solicitation agreement because it can limit an employee’s ability to earn an income. To ensure the non-competition agreement is legal and enforceable, it must be carefully drafted.
Confidentiality or Non-Disclosure Agreements
A confidentiality agreement, also known as a non-disclosure agreement, prevents an employee from disclosing confidential information they’ve become aware of during their employment. This is meant to protect the employer and the employer’s partners, vendors, customers, and other associates whose information the employee might have access to.
Examples of the kind of information these clauses protect include trade secrets, client lists, or financial information.
A non-solicitation agreement prevents an employee from taking or actively pursuing fellow employees, clients, customers, or suppliers from their employer, either during or after the employment relationship.
2. Is this restrictive covenant enforceable?
The courts generally view restrictive covenants unfavorably. They’re seen as detrimental to employees and a means to limit market competition. Because of this, common law typically treats restrictive covenants – especially non-competition agreements – as unenforceable unless the employer can demonstrate that the restrictions are reasonable and justifiable.
A restrictive covenant must meet certain criteria to be enforceable in an Alberta court of law.
- Time periods, geographic areas, and other restrictions must be clearly defined and understandable.
- The restrictions must use the least intrusive means possible to protect the employer’s interests.
- It must consider the employee’s position, not solely the employer’s interests. For example, some restrictions might be appropriate for a senior position, but excessive for a junior position.
- The employer’s interests the covenant is to protect must be legitimate and proprietary.
- It should not deviate from the standard practice in the industry.
Employers frequently draft restrictive covenants that will not be enforceable according to Alberta law. If the language is overly broad or ambiguous, or if the restrictions are unreasonable, it is invalid. Also, if an employee is wrongfully dismissed, the restrictive covenant is often unenforceable.
3. What happens if I violate a restrictive covenant?
If you violate an enforceable restrictive covenant and your employer takes the matter to court, you may be sued for damages and forced to follow the restrictions. However, it depends on the nature of the covenant you signed and what is included in the contract. Sometimes the clause stipulates the applicable damages in the case of violation.
4. How can I get out of a restrictive covenant?
If the restrictive covenant is enforceable, you can’t get out of it legally without negotiating with the employer. However, if you want to get out of a restrictive covenant, the best thing to do is have your contract reviewed by an employment lawyer to find out if it’s actually enforceable. If it’s not enforceable, you are not legally bound by it.
5. An Alberta employment lawyer can help with restrictive covenants.
An Alberta employment lawyer can help with restrictive covenants for employers and employees.
For employers, we can:
- Help you draft an enforceable agreement that protects your business interests
- Review your existing restrictive covenants and ensure they are enforceable
For employees, we can:
- Help you understand your employment contract and restrictive covenants
- Assess the enforceability of your restrictive covenants
- Help you negotiate with your employer for less restrictive clauses or to release you from a restrictive covenant
- Advise you of your obligations, rights, and options according to Alberta law
- Advocate for you in the event that your employer takes you to court to enforce a restrictive covenant
The experienced employment lawyers at Getz Collins and Associates know the potential consequences of overly restrictive agreements. We also understand the potential damage that a breach of a restrictive covenant can cause. Our lawyers are prepared to advise and advocate for employers and employees on any matter relating to restrictive covenants. Let us know how we can help you!