Preventing former employees from competing
I own a business in a small town in Ontario. I am about to hire an employee, but I want to make sure that if he quits he won’t set up a competing business. What should I do?
It is important to require the employee to sign an employment agreement which includes a non-solicitation provision and, in appropriate circumstances, a non-competition clause, prior to starting work. This will provide some protection after the employment relationship ends.
A non-solicitation clause is used to ensure the employee won’t solicit customers for the purpose of selling any products or services which are substantially similar to those you currently sell. This clause can be drafted to be enforceable during the employment relationship and for a certain period of time thereafter.
A non-competition clause is broader in scope and can be used to ensure former employees do not engage in a business that competes with their former employer.
Courts are more likely to uphold non-solicitation provisions. Generally speaking, non-competition clauses are only enforceable in exceptional circumstances, whereas non-solicitation clauses are usually permissible. But in certain circumstances reasonable non-competition clauses may be upheld.
Non-competition clauses can be considered restraints of trade and contrary to public policy. The clause will be seen to be a restraint of trade unless the employer proves it has a proprietary interest deserving of protection, that it is reasonable in terms of duration and geographic location, and that a non-solicitation clause would not be sufficient to protect the employer's interests. It is with respect to this last point that many non-competition clauses will fall. In most circumstances the employer's interests will be adequately protected by a non-solicitation clause which prevents departing employees from soliciting clients, customers or other employees.
The basic goal of these restrictive covenants is to prevent the employee from using customer lists or trade secrets. They should not be used to prevent an employee from using his skills and knowledge or to prevent competition generally.
With respect to non-competition clauses, it is also important to ensure they are not too broad in scope. Trying to restrict your employee from starting a competing business anywhere in Canada for the next 15 years is not going to be found to be reasonable.
Since non-competition clauses are generally unenforceable, if you do include such a restrictive covenant you must include a severability clause. In the event the non-competition clause is found to be invalid by a court, a severability clause allows the court to "sever" the unenforceable provision from the rest of the agreement so the balance remains in force. Otherwise you run the risk of the entire agreement being found unenforceable because of the invalidity of the non-competition clause.
A third option is to also include confidentiality provisions in the contract to ensure confidential interests are protected. Certain employees, such as directors and managers, have a duty of loyalty and good faith and must avoid conflicts of interest. These duties survive past the end of the employment relationship. But other employees do not have that same obligation beyond maintaining confidential trade secrets and customer lists. You can expand their obligations by including terms with respect to confidentiality in the employment agreement.
Incorporating non-solicitation, non-competition (where appropriate) and confidentiality clauses into the agreement will protect an employer’s interests.
Dismissing an employee for lateness
We have an employee that is continually late to work. This has been going on for an extensive period of time and she keeps arriving later and later. Can we dismiss her for just cause because of this?
Summary dismissal is an extreme measure and one to be taken seriously. A single incident of lateness will not justify dismissal. An employer would be expected to formally warn the employee before proceeding with dismissal, a procedure known as “progressive discipline.” It is important for an employer to develop a policy on discipline and dismissal that is followed on a consistent basis. An employer should also keep accurate records and note each time an employee has been given a warning or has been disciplined. The employee should be specifically advised at the time of warning that further incidents will result in disciplinary action being taken, up to and including termination of employment. Progressive discipline should then be taken with each incident being carefully documented, which may ultimately culminate in termination of employment.
But employers should be aware that not only will they have to take progressive disciplinary action against the employee, but should also consider the following questions to determine whether a termination is sustainable on the basis of lateness:
•How long has the employee worked for you?
•When did the employee start being late?
•How often is the employee late?
•Is there a legitimate reason that the employee is late?
•Have you discussed the problem with the employee?
•Have you disciplined the employee due to her lateness?
•Have you recorded the instances of discipline?
•Do you have a policy which details procedures regarding discipline for excessive lateness?
•Are other employees ever late?
•How are they treated?
•How have you dealt with similar problems in the past?
A certain amount of lateness will not justify dismissal. But under specific circumstances where progressive discipline has been implemented and where the lateness is habitual or demonstrates a lack of concern for the employer, it may be considered just cause. But such a determination is fact specific and will require a careful consideration of the particular circumstances in question. Examine your actions and the actions of the employee to get a clear idea of the proper steps to take. If you are considering a dismissal for cause, it would be advisable to obtain advice from an employment lawyer first.
Peter Israel is the head of Goodman and Carr LLP’s Human Resource Management Group. He can be reached at (416) 595-2323 or email@example.com.