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How can I best position myself for success when starting my own business if my work contract includes non-compete and non-solicitation clauses?

The Globe and Mail with Sara Forte 2 September 2019

 

THE QUESTION

I’ve worked in marketing for more than a decade, representing brands as part of larger businesses. I’ve always dreamed of branching off to start my own operation, and friends have suggested taking on some freelance consulting work or side projects to build up my reputation and finances to start my own business. Unfortunately, my work contract includes non-compete and non-solicitation clauses that seem to prevent me from doing this. How can I best position myself for success when starting my own business given these contract clauses?

THE FIRST ANSWER

Sara Forte, employment lawyer, Forte Law, Surrey, B.C.

Non-competition and non-solicitation clauses in employment contracts can put a damper on entrepreneurial dreams. A common myth is that they are “not worth the paper they are written on.” Employers face an uphill battle in making them stick, but it can happen. In British Columbia, employers must prove that the restrictions protect a legitimate proprietary interest, are narrowly limited in scope (time, geography and activities), are clearly worded and reasonable considering the public interest.

Given these clauses can be enforced, it is ideal to avoid agreeing to them in the first place. In our experience, employees are often surprised that they have these terms in their contracts because they did not read/understand them when signing.

If you have already agreed to one of these clauses, the first step is to read the words carefully. Never assume what is covered. These clauses are interpreted narrowly, based on the words. They only restrict the specific activities listed and it may be your plans are not covered. If your plans are covered based on the wording, the safest option is to quit and wait out the period covered. If you have a non-solicitation only, you may be able to start your business if you avoid any contact with employees or clients of the company. Focus on new markets until the clause expires.

Lawsuits involving competing former employees can be extremely costly and hard-fought. If you have this type of clause, consult with an employment lawyer to understand your risks before taking the leap.

THE SECOND ANSWER

Chris Jones, associate, McLeod Law, Calgary

From your description, it sounds like you are currently an employee. If that is the case, then there are two different time frames to keep in mind: while you are employed and after you are employed.

During the employment relationship, there is a general duty of good faith and loyalty owed to your employer, whether the employment contract has non-compete or non-solicit clauses or not. A crucial part of that duty of loyalty is to act in the best interests of your employer and avoid conflicts of interest. Working for clients outside of your employment may be a breach of that duty, and the non-compete clause, if it is taking business away from your employer.

Unless there is a contrary agreement, after the employment relationship ends workers are generally free to compete against their former employer as long as they do not misuse any confidential information. Courts do not like enforcing non-competition or non-solicitation provisions in employment agreements, but will do so if the restrictions are necessary to protect the employer’s business interests and are “reasonable.” Restrictions will not be “reasonable,” or enforceable, if they are overbroad in terms of their duration, geographic scope or the type of activities being restricted. If the restrictions are appropriately tailored, it may be possible to work around them. A review of your contract would be necessary to be able to assess how likely it is that a court would find that you are subject to any restrictions on operating your own business.

Sara Forte is an employment lawyer of Forte Law.