Employers often insist on non-solicitation and non-competition clauses in contracts of employment. Sometimes they will try to add these restrictive covenants after the employment started, which can make it unenforceable. Other times employers will fire employees, only to be surprised to find out that the restrictive covenants are not enforceable. We will discuss these two issues in more detail below.
Failure of Consideration
The Alberta Court of Appeal looked at this issue in Globex Foreign Exchange Corporation v. Kelcher, 2011ABCA240. In this case the employer tried to extract more restrictive covenants after the employees had been employed for some time. The court said at paragraph 87:
...continued employment alone does not provide consideration for a new covenant extracted from an employee during the term of employment because the employer is already required to continue the employment until there are grounds for dismissal or reasonable notice of termination is given.
Enforceability after Termination
Globex also looked at the issue of enforcing a restrictive covenant after termination. At paragraph 48 in Globex, the Alberta Court of Appeal had the following to say:
When an employee is dismissed without cause or notice, the employer cannot enforce a restrictive covenant otherwise binding the employee: General Billposting. ...One rationale for the General Billposting principle is that it would be “morally unjust to permit an employer to recoup the benefit of a contractual restraint after it has acted reprehensibly by repudiating the contract”
If you have been terminated and you wish to discuss whether your restrictive covenants are enforcable, please feel free to contact us.
The information contained in this article is not legal advice. No solicitor client relationship is formed through this article. The reader is encouraged to retain counsel for advice in these matters.
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