Be careful when working for a competitor
Author: Daniel A. Lublin
You may owe duties to your former employer
Nothing infuriates a company more than news of an ex-employee soliciting away its most prized assets: the clients. But clients, much like those employees, are not sedentary. Seldom are they attracted to one company or another exclusively by virtue of the services they are offered. Rather, their loyalty often lies with the relationships that are built and the key employees who have built them.
Courts recognize that business relationships follow the employees who possess them and permit employers to protect their most valuable assets through contractual and equitable limits. But what happens when those limits go too far?
When Stephanie Keeling first started work with the Travel Company Ltd. in Lethbridge, Alberta, she was its most inexperienced travel agent. However, she soon became the company’s most senior employee, handling some of its best accounts.
Concerned that should Keeling ever leave, she would take her clients with her, and acting on the advice of its lawyer, the Travel Company drew up an employment contract for Keeling providing that upon her departure, she would not compete with the company for an eight-month period, within a 100-mile radius of Lethbridge.
Although Keeling felt uncomfortable signing a contract that limited her legal rights, she believed she would lose her job if she didn’t agree to its terms. Critically, the Travel Company did not advise Keeling that she was free to refuse the contract or encourage her to seek legal advice so that she understood its terms. Three days after receiving the contract, Keeling signed her name.
Following a “blowup” at the office, Keeling was dismissed. Within three days she had landed a job at a competing travel agency in Lethbridge. When the Travel Company learned that Keeling had secured work with a competitor, it sued both Keeling and her new company, relying on the contact that Keeling earlier signed as evidence of the alleged wrongs.
Recently, an Alberta court reviewed the contract and found that it was simply not an enforceable agreement. The court was particularly troubled by the manner in which the contract was introduced and the language of the restrictions that would have effectively prevented Keeling from working in the industry for an eight-month period of time.
Although Keeling freely signed the agreement, the Court found that the Travel Company’s failure to encourage her to seek legal advice and the implication that she would lose her job if she did not agree with the terms were problematic enough to strike the contract down.
Canadian courts are reluctant to enforce agreements that cross the line. If you want to create a contract to protect yourself from departing employees, there are a few rules. First, ensure you give the agreement to the employee before she begins work. If the contract is given even one day after, it may be set aside. Provide the employee with an opportunity to discuss the terms with legal counsel and do not take a “kitchen sink” approach to drafting restrictive covenants. Specialized counsel knows that less is more when drafting this language. Had the Travel Company specified that Keeling was free to work elsewhere, subject only to a non-solicitation of its clients, the results at trial would likely have been different.