For a company, it is essential to have enforceable employment contracts to avoid future liability. For an employee, you may want to find out if an employment contract is enforceable or what the ramifications are if you signed one.
It is common for Crangle to be asked to review an employment contract that was signed 10 or more years ago. Often these contracts are unenforceable because the law that they relied upon is outdated. This even applies large companies that hired one of the big law firms to draft their employment agreements. Employment law changes over time, like other areas of the law. If the company has not updated their employment contracts then they could be unenforceable. One area that often leads to a contract being unenforceable is with respect to non-competition clauses and non-solicitation clauses. These types of clauses are known as “restrictive covenants”.
Generally speaking, courts do not like to enforce agreements that contain a non-competition clause because they are considered to be an unreasonable restraint upon trade. These clauses are designed to prevent a departing employee from working in the area in which they have both experience and training. This means that the departing employee cannot make a living in his or her field, and so the courts will often strike out the whole employment agreement. On the other hand, these clauses may be enforceable if the restriction is for a very limited period of time, such as 12 months, and only if the restriction is with respect to a very limited geographical distance. For example, if the non-competition clause states that you cannot work for any competitor within 50 km, that may not be enforceable because it too large a geographical area. If the limitation is only 3 kilometers for instance, then a better argument can be made that it is enforceable.
Employment agreements containing non-solicitation clauses are more likely to be enforceable if they are very well drafted. These clauses should be for a very limited period of time, such as 12 months, and only apply to not soliciting clients that the departing employee came to know of and deal with through his or her employment at the company. This means that the departing employee can contact and do business with other clients. A common area of contention is when a client finds out where the former employee is working and follows them to the new company.
Contact Crangle whether you are a departing employee wanting to obtain an opinion about the enforceability of a contract, or a company that wants to update its employment contracts to increase their chances of enforceability are greater.