Canada: circumventing the disdain for non-competes

By John C. Kloosterman, Nima Rahimi

The Ontario Superior Court of Justice recently upheld a contract requiring a senior executive to provide six months’ prior notice before resignation. The court agreed with the employer that the senior executive could not move to a competitor during the notice period, effectively prohibiting him from competing during a contractual notice period.

In Blackberry Limited v. Marineau-Mes, the Company promoted the executive from a Senior Vice-President position to an Executive Vice-President position. As part of this promotion, the executive signed a new contract which provided that he could “resign from employment with [the Company] at any time upon providing six (6) months’ prior written notice.”

During and around the time of the executive’s promotion, the Company went through some changes, including management changes. In discussions with the new CEO, the executive learned that the future of his role would be ultimately narrower than originally contemplated. Unhappy with this, the executive decided to move to a competitor and provided the Company with two months’ notice. The Company took the position that the executive was obligated to provide the six months’ notice and could not move until that period had ended.

The court’s most intriguing discussion centered on the executive’s argument that the six-month notice period was equivalent to a non-compete covenant, and therefore invalid and unenforceable for being overbroad. The court was not swayed, focusing on the fact that a six-month notice period was common in the industry to allow companies to protect themselves. The court agreed with the Company that the executive’s services would be necessary during the notice period to assist in his transition out of the Company. Further, the court differentiated the notice clause at issue here with non-compete agreements in that the executive would continue receiving compensation during the notice period. Finally, although the court admitted the notice period had some non-competition aspects, it was nonetheless reasonable, and reasonable competition clauses are enforceable.

Employers should find comfort in this decision. Although non-compete agreements are a difficult pill for the courts to swallow, employers may circumvent this barrier by incorporating notice periods, which may prevent employees from moving to a competitor.

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