What is the Value of a Non-Competition Clause?

2014-08-06

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WHATISTHEVALUEOFANON-COMPETITIONCLAUSE?*
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AWYERS,PATENTANDTRADE-MARKAGENTS
Restrictiveclausessuchasnon-competitionandnon-solicitationclausesare
commoninemploymentcontracts.Restrictiveclausesarealsomorecommonlybeing
usedincommercialcontracts,moreparticularlythosethatdealwiththesaleof
assets
Itisimportanttofirstdistinguishbetweennon-competeandnon-solicitationclauses
since,eventhoughtheyareoftenfoundtogether,theyhavedifferentobjectives.A
non-competeclausemainlyseekstoprotectthebeneficiaryoftheclausefrom
competitiveactivitiesthatcouldharmitseconomicinterests.Tobeconsideredvalid,
itmustmeetthecriteriatoreasonablyrestrictintime,territoryandtypeofactivities.
Thesecriteriaareobligatoryandtheirreasonability,whichwewillnotstudyinthis
article,aredefinedbycaselaw.
Ontheotherhand,anon-solicitationclauseseekstoprohibitthediversionofclients,
employees,suppliersandanyotherhumancapitalbuiltovertheyears.These
elementsareusuallyattheverybaseoftheappreciationorgoodwillpaidforthe
assetsofthebusinesssold,whichexplainsthenecessitytorestrainallformsof
solicitationthatcouldnegativelyaffectthebuyer.Anon-solicitationclause,incontrast
toanon-competeclause,doesnotnecessarilyneedtoincludearestrictionin
territory.Therefore,ifwepreciselyindicatetheclienteleorhumancapitaltoprotect,
inadditiontothedurationoftimeforthistypeofclause,caselawdemonstratesthatit
isnotobligatorythattheterritoriallimitbedefined.

Restrictiveclauses,despitetheiraforementioneddifferences,receivedifferential
treatmentbythecourtsdependingonwhethertheyareusedinthecontextofan
employmentcontractorinacommercialcontract.Inanemploymentcontract,the
objectiveistobalancetheforcesbetweenemployerandemployee.Inthe
enforcementoftheseclausesthecourtsaimtoprotecttheemployeewhoisina
weakerpositioncomparedtotheemployerwhohasastrongnegotiatingposition.For
thisreason,non-competitionclausesareoftengivenastricterinterpretationin
employmentcontracts.Inacommercialcontract,thistypeofimbalanceisnot
presumedandthepartieshavemorefreedomtocontract.Thecourtsmainlylookat
theintentionofthepartiesinthewordingoftheclausesandthecontextinwhichthey
werecreated.
ItisalsointerestingtonotethatcourtsofCivilLawjurisdiction(inQuébec)oftendiffer
intheirinterpretationofsuchclauseswhencomparedtocourtsofCommonLaw
jurisdiction(intherestofCanada).Inthisregard,inarecentdecisionoftheSuperior

©CIPS,2014.*FromROBIC,LLP,amultidisciplinaryfirmofLawyers,andPatentandTrade-markAgents.Published
intheSummer2014(Vol.18,no.1)Newsletterofthefirm.Publication068.180E.

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CourtofQuébec,Leclercc.StalDiffusioninc.[Leclercc.StalDiffusioninc.,2010
QCCS559(CanLII)],thecourtwrote:
[Translation]“Evenifthis[restrictive]clauseiscontainedina
shareholder’sagreement[i.e.acommercialcontract],theprovisions
relatingtocontractsofemploymentapplyheregivenLeclerc’sstatus
asaminorityshareholder.”

ItisimportanttonotethatLeclercowned40%ofthesharesinStalDiffusionwhenhe
signedtheshareholder’sagreement.
Incontrast,thecourtsinOntarioandAlbertarespectivelydecidedinAudience
CommunicationInc.c.Sguassero
[AudienceCommunicationInc.c.Sguassero,2010
ONCA510(CanLII)]andWildRoseMeatsInc.c.Andres[WildRoseMeatsInc.c.
Andres,2011ABQB68]thatSguasseroandAndres,despitetheirpositionsas
minorityshareholders(Sguassero5%ofsharesandAndres9%),wereboundby
purelycommercialagreementsandthustheinterpretationoftherestrictiveclauses
wasnotsubjecttotheprinciplesofinterpretationgiventothoseclausesin
employmentcontracts.ItshouldbenotedthatSguasseroandAndres,inadditionto
beingboundbyshareholders’agreements,wereboundtothecompanybycontract
asanemployeeandaconsultant,respectively.
Toconclude,despitethedifferentobjectivesofnon-competitionclausesin
employmentcontractsversuscommercialcontracts,tobevalid,theyallmustrespect
thecriteriaofduration,typeofactivityandterritoriallimit.Non-solicitationclauses
must,fortheirpart,respectthecriteriaofdurationandhumancapitaltoprotect.
Despitethisminordifference,thetwotypesofclausesmust,tobegivenfulleffect,be
interpretedinlightofthecontractualframeworkinwhichtheyoperate.

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biotechnologies,pharmaceuticalsandplantbreeders;tradesecrets,know-
how,competitionandanti-trust;licensing,franchisingandtechnology
transfers;e-commerce,distributionandbusinesslaw;marketing,publicityand
labelling;prosecutionlitigationandarbitration;duediligence.
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ILATOUTDEMÊMEFALLUL’INVENTER!
®/MD

LAMAÎTRISEDESINTANGIBLES
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