We’ve touched on restrictive covenants, specifically the fairly recent law banning non-competition agreements in employment contracts. We also frequently write about notice periods for terminations. What happens when the two collide? What is the impact of non-competition and non-solicitation provisions on a terminated employee’s notice period?

Overview

Some courts have found that an employee’s reasonable notice period may be extended as the result of an enforceable restrictive covenant; in certain cases, courts have awarded employees reasonable notice periods mirroring the length of the restrictive covenants. The rationale is that restrictive covenants, such as non-solicitation provisions, diminish the ability of a dismissed employee to re-employ and increase the total time period it takes them to find comparable employment.

What do the courts say?

In an older case, Tremblett v. Imperial Life Association Company of Canada, the plaintiff employee, who was a life insurance agent as well as sales manager, and employed with the defendant employer for less than 3 years and 3 months, was awarded 12 months of notice. The employee’s award was impacted by the fact that he had signed an undertaking that he would not solicit or contract business from the employer’s clients for a period of 1 year after the end of his employment. The Court found that this seriously limited his ability to work as a life insurance agent during that period and awarded him a reasonable notice period of 1 year. This is a fairly long notice period, given his short service to the employer. 

The Court in Mikelsteins v. Morrison found that the subject non-solicitation clause which the plaintiff employee had accepted placed him at a competitive disadvantage in the job market, as the clause restricted his marketability with third party companies wishing to do business with the telecommunications companies for which the plaintiff had been attempting to work. Likewise, in  Dimmer v. MMV Financial Inc., the non-competition agreement which bound the plaintiff employee for one year after his termination, and with which the plaintiff complied, was found to have eliminated the employee’s opportunity to secure similar employment that year and in fields even beyond the reach of his agreement. The Court considered this factor as one in favour of a longer notice period for the employee.

Unenforceable or unenforced restrictive covenants

Courts have also provided clarity on an employer’s subsequent waiver of a restrictive covenant as well as the impact of an unenforceable restrictive covenant with respect to an employee’s reasonable notice period. In Ostrow v. Abacus Management Corp. Mergers & Acquisitions, the non-competition provision was relevant to the analysis regardless of whether the employer had enforced such agreements in the past or would do so in this case, so long as the employee reasonably believed that the clause would be enforced. Similarly, in Watson v. Moore Corporation Ltd., the same belief in the enforceability of the non-competition provision made it relevant to the analysis of the proper notice period, despite the fact that the provision was invalid due to the contract also being invalid. 

Advice for employers

Given that non-competition and non-solicitation provisions may lead to increased termination notice periods, employers would be well-advised to ensure that their employment contracts contain valid termination provisions that do not open them up to liability to provide common law/reasonable notice to terminated employees. However, in Ontario, non-competition provisions entered into prior to October 25, 2021 are generally unenforceable except in special circumstances, such as for executive-level employees.