Have you taken a look at your employment contract recently? If you leave your job, does it keep you from doing working in the same type of job for a competitor or starting a competing business? If so, how for long and in what area?
Or maybe, rather than keeping you from working for a competitor or starting your own competing business, maybe your contract requires you to pay your employer instead. This is exactly what happened to a newly licensed vet in Creston who entered into a 3 year agreement with a local vet clinic. In the event of termination (by her or the clinic), her contract with the clinic required her to pay the clinic $150K for terminatin within 1 one year, $120K within 2 years and $90K within 3 years. The contract stated the vet agreed to pay the amount given the clinic’s investment in her training and transfer of goodwill in the business to her.
As often happens in contractual relationships, differences of opinion arose between the vet and the clinic, the vet terminated the agreement and brought court proceedings to have the section of the contract requiring the payment declared unenforceable. The court action proceeded all the way to the BC Court of Appeal.
The BCCA found that while this section was not a traditional non-competition agreement because it did not prohibit the vet from competing with the clinic, it was still a kind of non-competition clause because it effectively provided for no competition without payment. So, while the section was a restraint in trade, it was found to be reasonable and therefore, enforceable.
Restraint of trade clauses are often found in employment contracts, but not all such clauses will be enforceable. Whether you are an employer thinking about having your client sign a non-competition agreement or you are an employee looking at joining a business where you are being asked to make a promise to pay like the newly licensed vet, it will be important to seek legal advice.
Authored by Denese Espeut-Post (May 21, 2015)
What is the best corporate structure for your business? There are many factors to consider when determining the best corporate structure. Asset protection is one factor, but it is a very important factor, especially when a business in new and vulnerable; however, tax, financing and operational factors are also important considerations.
To read my complete article on this topic, you can view it here.
Imagine going from owning 22 properties throughout the South Okanagan, 7 wineries and a distillery to receivership, liquidation and a financial loss of all your equity and then some. That is the unfortunate fate of the Holmans, the former owners of the Holman Farms, Lang Vineyards and other associated wineries. According to a March 14, 2013 article in the Penticton Herald, Battle continues over controversial foreclosure, a bank foreclosure resulted in a significant financial loss given the appraised value of various business assets that were sold to pay outstanding debt. They lost their businesses, they lost their financial growth, they lost their home.
This, of course, is a sad state of affairs that business owners do not anticipate when they nourish and grow their entrepreneurial dreams and start their business. However, the reality is that many businesses fail for various reasons. Those who own a business can learn from those who have failed despite considerable effort and planning. Keith Holman is quoted as stating “You’d better realize if you start getting the bank on you, you’d better get to [the] lawyers and be very careful about what you sign.” I would take this one step further and say that you should not wait until the bank is on you. Develop a relationship with a lawyer you trust who can act as your advisor throughout the life of your business. It may cost you some time and some of your start up funds, but these will far outweigh the potential costs you will experience if you become involved in a contractual dispute or court battle.
Read our Orchard and Vine article (Summer 2012) – A Lawyer in your Back Pocket.