What is a Non-Compete Clause?
A non-compete clause is a type of restrictive covenant that prohibits a former employee from entering into or starting a similar business as their former employer; in other words, it prohibits an employee from competing against their former employer. Without a non-compete clause, there is nothing stopping a former employee from pursuing work that competes with their former employer.
When Should Employers Implement a Non-Compete Clause?
Non-compete clauses are meant to prevent situations of unfair competitive advantage involving former employees. If an employer has a legitimate concern that a former employee may attempt to engage in competing work and possesses intimate knowledge of its business, implementing a non-compete clause may be a good idea.
What Does a Non-Compete Clause Require to be Enforceable?
Because they limit someone’s ability and freedom to make a living, non-compete clauses are difficult to enforce and scrutinized by courts. A non-compete clause is enforceable only if it is reasonable between the parties and with reference to the public interest. A properly drafted non-compete clause has a better chance of being enforced, and the following factors should be kept in mind when drafting such a clause:
- Use clear and unambiguous language: Any confusion regarding any aspect of the clause (i.e. the time period, prohibited activity, geographical limit, etc.) increases the likelihood that it will be interpreted in favour of the former employee and deemed unenforceable.
- Clearly list the prohibited activities: There should be no confusion as to what the former employee cannot do once their employment ends.
- Set a reasonable geographical boundary: The geographic limit must be realistic and reasonable. An employer cannot prevent a former employee from working in an entire country or, in some cases, an entire city.
- Limit the length of the restriction: While one year is commonly used, this is highly contextual and depends on a number of factors including industry norms.
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