This is a 4-part article series that points out crucial aspects of identifying when an employee has been wrongfully dismissed. Our goal is to teach you to recognize when the termination of your employment is unjust and assist you in fully understanding your employee rights.
This is the last blog post in our 4-part Wrongful Dismissal series. In the previous post, we learned about calculating reasonable notice and knowing when you are entitled to it.
In most scenarios where an employee has been terminated, it is a clean break.
However, there are also many scenarios in which the employee will have certain obligations that survive the end of the employment relationship, whether or not they were wrongfully terminated.
A common example of this is the presence of a “non-competition” clause in an employment contract.
Non-Competition Clauses
The basic premise of a non-competition clause is to prevent an employee from carrying on the same kind of work for one of its employers’ competitors in a given geographical area, once the employee has been terminated by their current employer.
Employers will include a clause like this in the employment contract in order to protect their own business interests.
Example Scenario
A veterinarian (Masahiko) employs a junior veterinarian (Ji Yoon) to work at his animal hospital.
Their contract includes a provision that, if Ji Yoon’s employment is terminated, she cannot carry out the work of a veterinarian within a 20 kilometre radius of Masahiko’s office for three years.
Further to this, if she is found to be performing the work of a veterinarian within 20 kilometres of Masahiko’s office, then she must pay liquidated damages to Masahiko, in order to compensate him for taking away his business.
In the first year following her termination Ji Yoon must pay Masahiko a sum of $30,000.00. In the second year, she would have to pay him $20,000.00. And in the third year, she would have to pay him $10,000.00.
The Analysis
A non-competition clause like such will be upheld by the courts where it is unambiguous in its meaning and where it is reasonable in its terms.
For instance, the geographical area in which the clause applies must not be too broad and must be clearly defined. In this case, it is clearly defined as a 20 km radius zone.
But whether the geographical area is too broad could potentially engage a number of other considerations i.e. within that 20 km zone, how dense is the population? How many animal hospitals are already there?
Additionally, the clause cannot completely prohibit the work, but rather must reflect a restraint on it.
For example, the clause would not be upheld if it stated Ji Yoon could no longer be a veterinarian if her employment with Masahiko were to be terminated. This would be an outright prohibition.
However, since it is for three years, it reads more like a restraint for a fixed period of time.
But, of course, the period of time also has to be reasonable.
The amount for liquidated damages also has to be reasonable and reflective of a genuine pre-estimate of damages to Masahiko.
This means that Masahiko would have to be able to justify how he would lose $30,000.00 in the first year following Ji Yoon’s termination, if she were to open a veterinarian office within 20 kilometres of his office within that time frame.
The Takeaway
If you are signing a contract with a non-competition clause in it, it is best to seek out the advice of a lawyer before you sign any such contract.
An experienced lawyer will be able to assess the strength of a non-competition clause based on how it is worded and an analysis of the relevant case law.
If you have any questions regarding clauses in your employment contract, speak to one of our employment lawyers by calling (778) 565-4700 or simply fill out our contact form.
The preceding content is for informational purposes only and does not constitute legal or professional advice. To obtain such advice, please contact our offices directly.
Read the rest of our Wrongful Dismissal Series: