Area of Law: Business Law
Answer # 0304
Non-competition AgreementRegion: Ontario Answer # 0304
What is a Non-competition Agreement?
A Non-competition Agreement is often used between an employer and employee to prevent key employees from leaving the employer and immediately working for a competitor. These agreements are often part of written employment agreements, but can also be separate contracts, and are useful if a dispute arises.
Non-competition agreements restrict the rights of a former employee to compete with their former employer and to disclose confidential information learned while on the job. It helps to ensure that property, information and client contacts belonging to the employer cannot be used by the employee to compete with the employer after the employment relationship has ended.
The contract must outline the scope of information that the employer deems to be confidential, the duration of the restrictions, and the geographic area the restrictions cover. Furthermore, the restrictions must be reasonable, particularly in regards to geographic area and duration. An employer cannot restrict the right of a former employee to compete indefinitely, nor can they impose restrictions which would prevent the employee from earning a living.
Creating a valid Non-competition Agreement
Like all contracts, a Non-competition Agreement requires that each party provide consideration to be binding. Consideration is something of value, such as money, or, in the context of employment, the employer’s promise of a job and the employee’s promise to provide a service. An employer might require a prospective employee to obtain independent advice to establish that the agreement was freely made. At the very least, the prospective employee should have sufficient time to read and understand the contract before being required to sign it.
Essential features of a Non-competition Agreement
The Agreement must contain a number of features, such as:
- the names of the parties
- the date when the contract begins
- a description and scope of the restricted behaviour
- duration of the restriction, which continues for a specified time-period after the employment has been terminated
- if there are any geographic boundaries which the restrictions cover
In addition to these basic features, many such agreements have more technical provisions that address the legal parameters of the contract. For instance, a clause might state that the Non-competition Agreement forms part of the employment agreement between the employer and employee. Some other technical provisions sever an invalid clause from an otherwise valid contract and establish the jurisdiction for legal disputes about the contract.
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