The non-compete clause: the one
that holds, and the one that falls

Few clauses are signed as often, and struck down as often, as the non-compete clause. Well drafted, it protects what your business holds most precious: its clientele, its strategic information, its market position. Too ambitious, it may end up protecting nothing at all.

Here is how to tell the one that holds up from the one that falls.

Employment or sale of a business: the distinction that changes everything

In an employment context, the non-compete clause is governed by article 2089 of the Civil Code of Québec. It must be in writing and limited, as to duration, territory and type of work, to what is necessary to protect the employer’s legitimate interests. If challenged, the employer bears the burden of proving that the clause is valid, and the courts interpret it strictly, because it prevents a person from earning a living.

Article 2095 adds an important limit: an employer who dismisses an employee without a serious reason cannot rely on the non-compete clause. In other words, a poorly handled termination can strip the business of a protection it thought it had secured.

The context of a sale of a business is entirely different. The seller has been paid, often handsomely, for their clientele and goodwill; it is only natural that they undertake not to win them back the day after the transaction. The Supreme Court of Canada confirmed this in Payette v. Guay: between business people negotiating as equals, the courts interpret these clauses with far more flexibility. A clause that would fall in an employment contract may very well hold in a contract of sale.

The three criteria of a reasonable clause

Whether in an employment or business sale context, the validity of a non-compete clause is assessed against three criteria:

• duration: it must be limited to the time genuinely needed to protect the business, and no longer;
• territory: it must match the market where the business actually operates;
• the nature of the restricted activities: the clause must prohibit what actually competes, not an entire economic sector.

These three criteria are weighed together and in context. A longer duration may be justified over a small territory; a broad territory often calls for a shorter duration. It is all a matter of balance, and of evidence.

The classic mistake: the overambitious copy-paste

“Anywhere in Canada, for ten years, in any activity even remotely related to our industry.” On paper, this kind of clause seems to offer maximum protection. Before a court, it often produces the opposite effect.

In an employment context, the court does not rewrite an excessive clause: it will not trim ten years down to a reasonable duration, or shrink the whole of Canada to the region where your clients actually are. If the clause is found unreasonable, it is struck down in its entirety, and the former employee walks away free of any restriction. By trying to protect too much, you end up protecting nothing.

Key takeaways

The complements that are often more effective

Non-competition is not the only possible protection, nor always the best one. Other, more targeted clauses are generally easier to enforce:

• the non-solicitation of clients, which prevents actively courting your clientele without prohibiting work altogether;
• the non-solicitation of employees, which protects your team against poaching;
• confidentiality, which covers your strategic information with no territorial limit.

In many files, a combination of well-calibrated clauses offers more solid protection than a single oversized non-compete clause.

Why consult before signing, or having someone sign?

A non-compete clause is drafted for a specific situation: the position held, the access to the clientele, the business’s actual market, the nature of the transaction. A generic template, however impressive, takes none of these elements into account.

At Meka Avocat, we draft and review restrictive covenants for employers, business buyers and business sellers. We help you calibrate a protection that matches your reality, and that stands a real chance of being upheld.

Frequently asked questions

Is a non-compete clause valid in Quebec?

Yes, if it is reasonable. The Civil Code of Québec requires it to be limited as to time, territory and the type of work, and to go no further than necessary to protect the legitimate interests of the party imposing it.

Is the rule the same in employment and in a business sale?

No, and this is the most important distinction. In employment, courts read the clause narrowly and the burden falls on the employer. In a sale of a business, where the seller receives a price in exchange, a longer and broader clause is generally accepted.

What happens if the clause is too broad?

It falls. Quebec courts do not rewrite an unreasonable clause to bring it back to an acceptable scope: they declare it invalid. An over-ambitious clause therefore protects nothing at all.

Which clauses protect better than a non-compete?

The non-solicitation of clients and employees, the confidentiality clause and intellectual property protections. They are easier to enforce because they stop no one from earning a living.

Would your non-compete clause hold up?

Whether you are about to have a clause signed, to sign one yourself or to check the scope of one that already binds you, a consultation brings clarity quickly. Book an appointment with our team to review your situation.

Non-competition is rarely negotiated on its own. It usually rides alongside a shareholder agreement, where it sits next to the shotgun clause, or a business sale, where it forms part of the price the buyer agrees to pay, and our commercial contracts practice.

Published under the direction of Me Abdelkrim Kebache

Lawyer, member of the Barreau du Québec since 2014, founder of MEKA AVOCAT. This text sets out general legal information: it describes rules that apply broadly, not the answer to one particular case, and does not replace advice on your situation.

His background → All insights →