Enforcing Non-Competition Agreements – A Non-Starter?
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Article2023 | 02 | 06
Enforcing Non-Competition Agreements – a Non-Starter?
Having your employees agree to not compete against you after they move on is great for your business. But how easy is it to actually enforce a non-compete clause when you believe a former employee is breaching it?
In Manitoba, our Court of Appeal clarified earlier this year that your non-compete clause is going to be highly scrutinized at the early stages of litigation if you are pursuing a Court order to stop the competition while you wait for the litigation process to progress to a trial. This means your non-compete could be sunk before it sets sail.
Non-Competes Presumed to be Unreasonable / Unenforceable
Non-competes have a tough road ahead of them if they are to be enforced.
The law has long confirmed that non-compete clauses, like other post-employment restrictions on employees that curb their ability to make a living, are presumed to be unenforceable unless proven to be reasonable in the circumstances by the employers trying to enforce them.
There are all sorts of ways that a non-compete may be considered unreasonable: its language is vague or uncertain; it goes further than it needs to in respect of its duration and/or geography; or the employer has not established a proprietary interest warranting protection afforded by a non-compete.
Enforcing Non-Competes by Injunction and the Mansbridge Case
Usually, the first step to enforce a non-compete is to sue and plead with the court that it ought to order the ex-employee to stop competing immediately while the litigation process unfolds for the next several months or years (i.e. an injunction motion).
If your injunction motion succeeds, it should stop the bleeding since (hopefully) the ex-employee will stop breaching the non-compete in fear of breaching a court order.
There has been some uncertainty about the level of scrutiny the court would evaluate non-competes to determine their enforceability at this early stage of the court process. One being a “serious issue to be tried” that involves less scrutiny than the other standard, being a “strong prima facie case.”
For employers looking for an early court order that prevents competition with awaiting trial, less scrutiny of the non-compete increases the chances of successfully getting that early court order while awaiting a full trial in the future.
However, the Manitoba Court of Appeal in Mansbridge cleared up the uncertainty last year by confirming that the more stringent “strong prima facie case” standard is to be applied in an employment law context.
Make Your Non-Competes Competitive
Why is this important to employers?
At the very early stages of litigation, the Court will review the non-compete clause in great detail to consider whether it is actually reasonable and, so, enforceable. The ex-employee (or their lawyer) can take the opportunity to pick apart every aspect of the clause in hopes that the Court agrees with any criticism of it, rendering it entirely unenforceable.
The arguments by employee-counsel are easy to predict: the description of the business in which the ex-employee cannot engage in is unclear; the geographic scope is vague or, even if clear, goes further than necessary; a non-solicit clause would have been sufficient to protect the employer’s interest and so the non-compete is overkill.
A carefully thought out non-compete clause, precisely drafted in anticipation of those kinds of arguments, will help increase the chances that the clause will withstand this higher degree of scrutiny during the early stages of litigation.
DISCLAIMER: This article is presented for informational purposes only. The views expressed are solely the author(s)’ and should not be attributed to any other party, including Taylor McCaffrey LLP. While care is taken to ensure accuracy, before relying upon the information in this article you should seek and be guided by legal advice based on your specific circumstances. The information in this article does not constitute legal advice or solicitation and does not create a solicitor-client relationship. Any unsolicited information sent to the author(s) cannot be considered to be solicitor-client privileged.
If you would like legal advice, kindly contact the author(s) directly or the firm's Chief Operating Officer at pknapp@tmlawyers.com, or 204.988.0356.
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About the Author
Peter Mueller
Partner
204.988.0316
pmueller@tmlawyers.com
pmueller@tmlawyers.com
Peter is passionate about his work in the Labour & Employment Law field. He is regularly sought after by employers and human resource professionals for his litigation expertise as well as his counsel on day-to-day human resource matters. Peter’s advocacy experience includes acting as the lead negotiator for management in collective bargaining, defending wrongful dismissal lawsuits, and advising clients operating in both non-unionized and unionized workplaces dealing with grievances and arbitrations under collective agreements.