Non-Competition Clauses – Do you have to pay your employer to leave?

Posted on: March 21, 2015

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)

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