There is often an end to many relationships, including employment relationships. In the area of employment, there may have been a mutual separation between the parties, the employee may have been terminated or constructively dismissed, or the employee may have resigned. This can result in disgruntled employees or vendettas. Following the end of any employment relationship, there are usually legal obligations imposed on both the employer and employee, some of which are discussed below.
#1 – Non-Competition Agreements
Employers will often attempt to add further obligations onto an employee by having the employee enter into a variety of restrictive covenants, including a non-competition agreement. The goal of these agreements is to prevent an employee, either while employed by the employer and/or for a period of time following the end of the employment relationship, from working with a competitor of the employer’s.
Given the potential for these agreements to significantly limit an employee’s work opportunities following the end of any employment relationship, the employer must ensure there is a rational purpose connected to the agreement itself, and that the restriction to the employee is reasonable in the circumstances. Factors the Courts often look at when determining whether a non-competition agreement is reasonable include the length, the geographic scope, and the otherwise overall degree of restriction being imposed on the employee.
#2 – Non-Solicitation Agreements
Another restrictive covenant that employers often impose is a non-solicitation agreement. The goal of these agreements is usually to prevent an employee of the company, either during their tenure of his or her employment or afterwards, from recruiting or otherwise enticing another employee of the company to leave their employment and join a different (and usually competing) company.
Generally speaking, while these agreements are not as impactful on an employee’s work opportunities following the end of any employment relationship, the Courts will often look into whether or not these agreements are reasonable and necessary in the circumstances. Like non-competition agreements, this also involves looking at factors such as the length, severity, and geographic scope of the restriction.
Whether one is looking at a non-competition agreements or non-solicitation agreements, Courts will typically consider the following questions when assessing whether or not a restrictive covenant should be enforced:
- Does the employer have a proprietary right or legitimate interest that requires protection?
- If so, is the extent of the protection reasonable in the circumstances of the case? And
- If so, does the public interest demand that the covenant not be enforced because it would be contrary to public policy to do so?
#3 – Confidentiality Agreements
Many employment relationships involve the knowledge and/or disclosure of confidential information, information that is proprietary to the company and essential to the company’s operations. In an effort to protect this information, employers will often require that employees sign a confidentiality agreement at the time of hire, preventing the employee from distributing or disclosing this information with anyone outside the company, including any future employers.
The Supreme Court of Canada confirmed a three-part test in assessing whether there has been a breach of confidence:
- The information conveyed to the employee was confidential;
- It was communicated to the employee in confidence; and
- It was misused by the party to whom it was communicated.
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Any time an employee is terminated or found to be constructively dismissed from their employment (i.e. where there has been a significant change to the terms of their employment that they otherwise do not agree to), it is also recommended that the employer have the employee sign a full and final release requiring him or her to keep the terms of any settlement confidential. This will prevent the employee from disclosing the nature of the settlement to other individuals, including past or current employees.
Tips for Employers
Employers need to know that the Courts in Ontario attempt to balance the employee’s ability to earn a living following the end of an employment relationship with the need of the employer to protect its business interests. If an employer is considering imposing some form of restriction or restraint on an employee following the end of the employment relationship, they should consider the least intrusive but most effective way of achieving their goal. Post-termination obligations should always be justifiable, reasonable and contained in a written contract, preferably the original contract of employment.
Tips for Employees
Most employees should not have too many concerns about their ongoing legal obligations to the employer following the end of the employment relationship. Generally speaking, the employees who are likely to face significant and restrictive post-employment obligations are employees who hold senior positions within the company and owe what is known as a “fiduciary duty”. A greater level of restriction and discretion is expected of these employees.
Regardless of whether you are an employee who is wondering about your obligations either during or after the employment relationship, or you are an employer who is considering imposing a number of obligations on an employee, it is highly recommended that both parties seek independent legal advice before taking any further steps.Post-termination obligations should always be justifiable, reasonable and contained in a written contract. Click To Tweet
Chris Justice is an associate lawyer with Samfiru Tumarkin’s Labour and Employment Law Practice Group in Toronto, Ontario.