A restrictive covenant in a contract is a restraint of trade. A restrictive covenant precludes the vendor in the sale of a business from competing with the purchaser and, in an employment contract; the restrictive covenant precludes the employee, upon leaving employment, from competing with the former employer.
Preemptively restrictive covenants are prima facie unenforceable; however a reasonable restrictive covenant will be upheld. To be reasonable, the terms of the restrictive covenant must be unambiguous. Next, the geographic coverage of the covenant, the period of time in which it is effective, and the extent of the activity sought to be prohibited is also relevant. A court will not rewrite a restrictive covenant in an employment contract in order to reflect its own view of what the parties’ consensus ad idem might have been or what the court thinks is reasonable in the circumstances.
In an employment context, to establish that a covenant is reasonable, an employer must be able to prove to the court that the contractual restraint has the following characteristics:
- It protects a legitimate proprietary interest of the employer;
- The restraint is reasonable as between the parties, in terms of temporal length, geographic area, nature of activities prohibited and overall fairness;
- The terms of the restraint are clear and certain; and,
- The restraint is reasonable in terms of the public interest, with the onus of proof on the party seeking to strike out the restraint.
Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, [2009] 1 SCR 157
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