Canadian Employment Law Today

Drafting restrictive covenants and making them stick It can be an uphill battle for employers trying to protect their business interests when employees leave, but enforceable restrictive covenants are doable BY PAMELA CHAN R estrictive covenants have long been a key tool used to protect employ- ers against unfair post-employment competition from their employees; a sort of legal safety net in case a departing employee attempts to poach clients, misuse confidential information or establish a com - peting business. Restrictive covenants usually come in three forms: non-competition, non-solic- itation and confidentiality clauses. ese clauses protect organizations' proprietary information or trade secrets, defend against the solicitation of their clients or employ - ees, or prevent a departing employee from working with a competitor or starting a competing business. In the age of social me- dia where many employees have LinkedIn, Twitter and Facebook accounts, employers are increasingly faced with challenges as to how to protect their business interests as communication on these platforms is pub - lic, but — to an extent — could be targeted to clients. While social media is a unique mode of communication, courts have thus far indicated they will likely continue to ap - proach the enforceability of restrictive cov- enants as they have in the past. It is a widely established principle of Canadian law governing the enforceabil- ity of restrictive covenants that they must be reasonable in the prohibitions on post- employment activity. Employers must be able to show legitimate business interests to be protected and the restrictive covenants should contain reasonable limitations in terms of geography, duration and scope of restricted activities. at assessment is fac - tually driven by the circumstances, but is typically based on the following: the nature of employment, the geographic scope of the employee's activities, the employee's access to confidential information and extent of his relationship with clients, as well as the em - ployee's duties and responsibilities. Courts will be reluctant to enforce restrictive cov- enants that provide for restraints broader than what is necessary under the circum- stances. Further, restrictive covenants that are ambiguous are considered unreasonable. High bar for validity To add to the enforcement challenges, there is a presumption by courts that re- strictive covenants are contrary to public policy as they can restrain a departing em- ployee from working. It is not surprising that non-competition clauses are subject to close scrutiny compared to non-solicitation clauses, which only prevent the solicitation of clients and perhaps employees. Courts will typically only uphold non-competition clauses in exceptional cases. In 2000, an On - tario Court of Appeal decision affirmed that, as a general rule, non-solicitation clauses are to be preferred over non-competition clauses. As such, even if a non-competition clause is reasonably drafted, should an em - ployer be unable to show exceptional cir- cumstances, the non-competition clause can still be struck down by a court if a non- solicitation clause would provide adequate protection of an employer's business inter - ests. Non-competition clauses are consid- ered to be a drastic measure that should only be used in limited situations, as they have the effect of limiting an employee's re- employment opportunities. As a final prin - ciple, the restrictive covenant has to strike a balance between competition and an em- ployer's right to protect its business. While non-solicitation clauses are pre- ferred by courts, these clauses also need to be reasonably drafted and provide rea- sonable prohibitions that are necessary to protect an organization's client base. Take the 2013 case of Planit Search Inc. v. Mann, where the restrictive covenants prohibited the former employee of a placement agency organization from contacting any candi - dates or clients of the organization for one year. Planit alleged that a former employee contacted the company's clients, whose names were in the internal database of 12,000 clients and 80,000 candidates and, as such, the client information used was con - fidential. Planit took this argument a step further by asserting that the entirety of the database was confidential requiring protec- tion. However, some of the names on this database were available on websites and so- cial media — including LinkedIn — which undermined the confidential nature of this information and the assertion that such in- formation required protection. e restric- tive covenant was considered unenforceable by the court for several reasons, including the overly broad scope of prohibited cli- ents. e restrictions placed a solicitation ban on all names in the database, including those of whom the employee was unaware, and was not limited to the contacts that the employee had dealt with. Further, the clause was ambiguous as it did not clearly identify the clients who were prohibited and were among the thousands of clients and candi - dates of the organization, some of whom were mere prospects. Social media can undermine an employ- er's claim to proprietary interest in con- fidential information — a requirement in enforcing restrictive covenants — particu- larly when the information is available in the public domain. In the 2013 case of Eagle Professional Resources Inc. v. MacMullin, the Ontario Court of Appeal affirmed the decision by a motions judge that informa - tion available on websites will not be con- sidered "confidential information" and former employees are entitled to use this information after the end of employment. ree former employees went to work for a competing company after resigning from employment. In attempting to enforce the employees' non-solicitation obligations, Eagle alleged the employees breached their non-solicitation obligations by misusing confidential information — the customer list — in order to solicit clients. However, this confidential customer list was also available through the followers' list in so - WHEN an employee leaves employment, there can be concern over whether the employee will keep the employer's information confidential or use skills learned with the employer against it. Restrictive covenants can help protect employers in such circumstances, but they are difficult to legally enforce. Read on below for key points in drafting enforceable restrictive covenants. BACKGROUND 4 Canadian HR Reporter, a Thomson Reuters business 2015 CASE IN POINT: RESTRICTIVE COVENANTS

• Cover