Some employment contracts, including many for employees working in the tech industry, have a non-compete or non-competition clause. This means an employee cannot work for another similar employer, typically within a specific time frame. For instance, the employee may need help to work for an employer in the same field that has worked on similar technology for a year or more. Relatedly, there may also be confidential information that an employee cannot share with a new employer regarding any work or technology developed by the employee. However, the employee will need to take on new work eventually, and using one’s experience to find similar work may be beneficial.
We will discuss what happens when an employee accepts a new role with an employer that does similar work despite a non-competition clause. We will also examine a recent case, EF Institute for Cultural Exchange Ltd. v. WorldStrides Canada, Inc., 2023 ONCA 566, in which an employee was found not to have breached the non-competition clause and confidential information agreement terms after negotiating his new position with his former employer’s competitor. This will be helpful for both employees and employers in understanding non-competition clauses.
If an employee signs an employment contract with a non-compete clause, they cannot enter into a role that is in competition with their employer until a specified term ends. For example, the non-compete clause may expire at the end of the employee’s employment or a particular time afterward, such as one year. The non-compete clause may also specify that the employee may not work for an employer in a similar line of work in a specified geographical location or market.
The employee may be required to sign a separate non-compete agreement if the employment contract does not include a non-compete clause.
Generally, the employee is prohibited from sharing confidential information with a new employer.
More recently, Ontario passed legislation prohibiting non-competition agreements after October 25, 2021. This means that employers cannot ask Ontario employees to sign an agreement that prevents the employee from engaging in work that competes with the employer’s line of work after the employment contract ends. This prohibition covers restrictions on both time and geographical location. In other words, an employer cannot have a non-compete clause that limits the employee from seeking work from a competitor after a specified period or in a particular location or market.
However, as this legislation only applies to non-competition agreements and clauses that are entered into after October 25, 2021, the existing laws on non-competition clauses are still helpful as non-competition agreements may have been signed at the beginning of one’s employment, which may be before October 25, 2021.
Also, there are exceptions to this prohibition. Generally, non-compete clauses may still apply to company executives, such as a chief executive officer, president, chief operating officer, etc. The legislation does not cover employment agreements for executives.
It is possible to negotiate an interview for a new role with a competitor of one’s employer before the non-compete clause expires, but this should be exercised with caution. An employee may also need to sign an agreement regarding confidential information with an employer, and the employee needs to ensure they are not breaching the agreement during interviews or negotiations with a potential new employer if they compete with their previous or existing employer.
In a recent case, EF Institute for Cultural Exchange Ltd. v. WorldStrides Canada, Inc., the court found that the employee did not breach the non-compete and confidentiality agreements while interviewing and negotiating a new role with a competitor. Despite being a recent case, the non-compete clause was not prohibited by Ontario legislation as it was entered into before October 25, 2021, and the employee was president of the company.
In the EF Institute case, the employee worked for EF Institute since 2005 and was most recently employed as president of the company starting in 2011. He signed an employment agreement for his new role with a non-compete clause and terms restricting him from sharing confidential information about EF Institute. This was signed in 2012.
Later, the employee was dismissed without cause in 2014. His non-compete clause would expire by September 30, 2015, one year after the date of his severance agreement. One day after, on October 1, 2015, the employee began working for a competitor, WorldStrides.
EF Institute claimed that the employee breached the non-compete clause and confidentiality agreement by engaging in interviews and negotiations that led to an offer from WorldStrides while the non-compete was still in effect.
In April 2015, the employee attended an interview with WorldStrides employees and officers. The employee then provided copies of his employment and severance agreements, which included terms that the employee would abide by the non-compete and confidentiality terms.
By June 2015, the employee was verbally offered a general manager position with WorldStrides, beginning on October 1, 2015, after the non-compete term expired.
The court found that the employee did not breach his confidentiality requirements after reviewing the interview notes, email correspondence, and employee’s resume shared with WorldStrides.
EF Institute appealed.
On appeal, the court agreed with the motion judge that the employee never provided confidential information to WorldStrides during the interview and negotiations process. The court also found no evidence that the employee assisted WorldStrides with business before the non-compete expired. The appeal was dismissed.
Despite the new Ontario legislation prohibiting non-compete clauses, these terms may still apply if they were entered into before October 25, 2021. Also, non-compete clauses can still apply to employees who are in executive roles. Therefore, it is essential to carefully review any non-compete terms in one’s employment agreement to ensure they are followed. If one is accepting a new role with a competitor during the non-compete period, this should be exercised with caution.
Despite recent Ontario legislation prohibiting non-compete clauses, they still may apply to your employment. They may restrict you from working for certain employers for a period of time or within a particular location. As this will depend on the specific circumstances of your case, our experienced employment law legal team at Haynes Law Firm in Toronto can assist you with issues that arise from non-compete clauses and confidentiality requirements in employment contracts. For employees, our goal is to ensure that they understand their rights and obligations under the employment contract. Haynes Law Firm also assists employers in avoiding liabilities that may arise from employment contracts that are not in line with legislation or case law. We are dedicated to finding the best resolution for you.
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