Me Marie-Michelle Savard
A partner at Verreau Dufresne Avocats, Marie-Michelle Savard focuses her practice on labour law, representing businesses and individuals with rigour and a personalized approach. With litigation experience before several provincial and federal tribunals and courts, she stands out for her analytical mind, rooted in her scientific training, and her ability to find practical solutions to complex issues.
View profileBook an appointmentA non-competition clause in an employment contract is meant to protect the employer during and/or after the employment relationship. However, this protection is not absolute, as the extensive case law on the subject shows. In fact, the validity of a non-competition clause is subject to many constraints.
Our labour lawyers explain everything you need to know about the non-competition clause in an employment contract.
The non-competition clause
Through a non-competition clause, an employment contract can provide that the employee agrees, during their employment and for a certain period after it ends, not to work for a business that competes with their employer, within a specified territory.
In principle, a non-competition clause is not contrary to public order, that is, to the protection of private interests and the promotion of the general interest. However, it will be considered contrary to public order if it cannot be shown to be reasonable in light of the employer’s legitimate interests. In the event of a dispute, it will be up to the employer to prove that the clause is valid.
Here is an example of a non-competition clause:
“The employee agrees not to participate in any capacity whatsoever in a business that would compete directly with the employer, or with any of its subsidiaries, in the field of trading in and manufacturing plastic containers, including but not limited to as a director, administrator, officer, employer, employee, mandator, mandatary, trustee, administrator of the property of others, agent, partner, general partner, independent contractor, franchisor, franchisee, distributor or consultant, for the entire term of employment and for a period of twelve (12) months after the employment ends, within a radius of one hundred (100) kilometres of the employer’s place of business, and only with respect to the activities carried out by the employee for the employer.”
Validity criteria for a non-competition clause
To be valid, a non-competition clause in an employment contract must meet the requirements of article 2089 of the Civil Code of Québec. The clause must be:
- In writing and in express terms (it must not be ambiguous);
- Limited to a reasonable period of time;
- Limited to a specific and reasonable territory;
- Reasonably limited as to the type of work prohibited;
- Limited to what is necessary to protect the employer’s legitimate interests.
These validity criteria are cumulative, which means they must all be met for the clause to be found valid. In addition, these criteria are assessed in relation to one another, in context. Failure to meet even one of them will make the clause null in its entirety and without effect, as if it had never been in the employment contract. Courts are not allowed to modify an unreasonable non-competition clause, for example by shortening its duration or narrowing its territory. The clause will therefore be declared valid or invalid as a whole.
This strictness stems in particular from the fact that a non-competition clause may prevent a person from earning a living, in whole or in part. The criteria mentioned above are analyzed case by case, based on the facts of each situation.
Criterion 1: The clause is in writing and unambiguous
A non-competition clause must be written in clear and understandable terms so that the employee knows the scope of their obligation not to compete with the employer, without having to wonder what the terms used in the clause mean.
Criterion 2: Territory (geographic area)
The territory covered by a non-competition clause will be considered reasonable if the clause is limited to what is necessary to protect the employer’s legitimate interests. It must therefore cover the territory in which the employer does business or carries on its activities. The territory can be described in geographic terms, such as a city, a province or a country, or as a set radius around a given location, for example a radius of 100 kilometres from the employer’s head office and/or places of business.
If the territory covered is ambiguous or if no territory is specified, the clause will be declared invalid.
The impact of remote work on territory
Since remote work has become common practice in businesses, the physical location where the employee performs their duties is becoming less and less relevant when analyzing the validity of a non-competition clause.
Non-competition clauses drafted before remote work became widespread may therefore need to be reviewed to adapt them to this new reality. Contact our labour lawyers to update your non-competition clauses and employment contracts.
clauses updated
Criterion 3: Duration
The duration of the non-competition obligation must be specific. In general, the courts find that a period of 12 to 24 months after the employment ends is reasonable. Whether the duration of a non-competition clause is reasonable is assessed based on various factors, such as the importance or nature of the employee’s position, the length of the contract, the time needed to replace a specialized employee, etc.
Criterion 4: Type of work
As for the field of activity, it is essential to specify and clarify the activities covered by the prohibition. The non-competition clause should prohibit only the activities the employee carried out while working for the employer; otherwise, it could be declared invalid.
A non-competition clause that completely prohibits working for a given competitor (regardless of the type of tasks the employee will perform there) could be found valid if the employee is part of the company’s senior management and the context justifies such a broad restriction. If the clause instead applies to an employee in a non-specialized position or without major responsibilities in the company, it cannot impose such a broad prohibition.
Criterion 5: The employer’s legitimate interests
When analyzing the validity of a non-competition clause, the employer’s legitimate interests are taken into account. This includes, in particular, the employer’s need to keep its clientele and goodwill, as well as the need to protect its trade secrets, manufacturing secrets or any other confidential information.
Determining whether a non-competition clause is valid
As you can see, determining whether a non-competition clause is valid is a tricky exercise that often has serious consequences. Unfortunately, the average person is poorly equipped to carry out this analysis, since it requires advanced legal skills and knowledge.
In this context, how can you be sure whether a non-competition clause is valid or invalid?
The ultimate solution is to submit the non-competition clause to a court so that it can rule on its validity. However, this is costly and is therefore rarely the first option to consider.
In practice, a much less costly alternative is generally preferred: obtaining a legal opinion from a lawyer.
Our lawyers can analyze your non-competition clauses and provide a detailed written legal opinion on their validity. They can also help you draft non-competition clauses or employment contracts so that they comply with the law and case law. Contact our labour lawyers today for assistance.
Penal clauses
A non-competition clause may be accompanied by a penal clause, that is, a clause that provides for a penalty if the non-competition clause is not respected. For example, an employment contract could provide that the employee must pay the employer a penalty of $100 per day of breach of the non-competition clause.
When an employer asks the court to order an employee to pay the penalty set out in the penal clause, it does not have to show that it suffered an injury because the non-competition clause was not respected. The existence of the penal clause is enough.
However, a court may find a penal clause abusive. Unlike a non-competition clause (which will be declared entirely invalid if it is found to be unreasonable), a penal clause found to be abusive can be modified by the court to reduce the amount of the penalty. The validity of penal clauses and non-competition clauses is therefore analyzed separately.
Dismissal or layoff of the employee
The Civil Code of Québec provides that an employer who dismisses an employee without a serious reason cannot rely on the non-competition clause in the employment contract. The same applies to an employee who is the victim of constructive dismissal.
Similarly, in the case of a layoff, meaning a termination of employment for economic reasons, the employer cannot rely on the non-competition clause. The courts have held on several occasions that a layoff is not a serious reason for terminating an employment contract.
The non-competition clause will therefore apply only if the employee resigns or if the employment is terminated for a serious reason.
Validity of a non-competition clause signed during employment
An employer cannot force a current employee to sign a non-competition clause, since adding one would be a substantial change to the employment contract. However, if an employee agrees to a non-competition clause during their employment, the courts could find it valid.
Consequences of breaching a valid non-competition clause
When an employee (or former employee) breaches a valid non-competition clause, the employer has various remedies.
First, the employer can go to court to obtain an injunction to force the employee to respect the clause.
Also, as mentioned above, the employer can rely on a penal clause in the employment contract to obtain payment of a penalty, without even having to prove the injury it suffered.
Finally, an employer can claim damages from the employee. It must then show the injury it suffered because the non-competition clause was not respected.
No non-competition clause: the employee’s duty of loyalty
However, an employee (or former employee) whose employment contract does not contain a non-competition clause is not free of all obligations toward their employer (or former employer).
The law requires employees to act with loyalty toward their employer during their employment and for a certain period after it ends. The duty to act with loyalty requires the employee to be honest, use good judgment, protect the confidential information they obtain from their employer and put their employer’s interests ahead of their own, for example by not placing themselves in a conflict of interest. Since this is an obligation imposed by law, the duty of loyalty exists even if the employment contract has no clause to that effect. This duty of loyalty also exists whether the employer dismissed the employee or the employee resigned.
So a former employee who has not signed a non-competition undertaking has the right to work for a competitor. However, they must act reasonably and remain loyal to their former employer by not harming it or using the confidential information they had access to in their former job.
Contact our labour lawyers
Non-competition clauses remain subject to validity conditions that do not follow a uniform rule, meaning that a case-by-case analysis is essential. Drafting, interpreting and applying such a clause therefore remains a delicate exercise.
Do not hesitate to contact our labour lawyers to get services tailored to your situation. In particular, our lawyers can:
- Draft or review your non-competition clauses or employment contracts so that they comply with the law and case law;
- Interpret and assess the validity of an existing non-competition clause;
- Represent you in court in a dispute about the interpretation, application or breach of a non-competition clause (injunction proceedings, claim for the penalty provided for in a penal clause, action for damages, etc.);
- Negotiate an amicable agreement to resolve such a dispute.
Note: The information above is general in nature and does not constitute legal advice. For advice on your particular legal situation, feel free to contact one of our lawyers in Québec City or Lévis.
