Non-competition agreement

How BC law treats it

A non-compete is a restraint of trade, a common law doctrine. A restraint is unenforceable unless the party relying on it shows it is reasonable between the parties and not contrary to the public interest (Elsley v JG Collins Insurance Agencies Ltd, [1978] 2 SCR 916). The covenant must be clear about the activity restricted, the time it lasts and the geographic area it covers. In employment, the Supreme Court of Canada treats non-competes as presumptively unenforceable (Shafron v KRG Insurance Brokers (Western) Inc, 2009 SCC 6, a BC case). A vague or overbroad term, such as "Metropolitan City of Vancouver", fails. Courts will not use notional severance to rewrite the clause into something reasonable. Because of this, courts often find that a narrower non-solicitation covenant was enough to protect the employer, which makes a full non-compete unreasonable. On the sale of a business, the vendor's covenant protects the goodwill the buyer paid for. Courts apply a more lenient test and give weight to the bargain between commercial parties of similar strength (Payette v Guay inc, 2013 SCC 45). These covenants appear in share purchase agreements, asset purchase agreements and shareholder agreements. Separately, since June 23, 2023, the federal Competition Act, RSC 1985, c C-34, s. 45(1.1) makes it a criminal offence for unaffiliated employers to agree not to hire or poach each other's employees, or to fix wages. Unlike Ontario, BC has not enacted a statutory ban on employee non-competes.

What it means for your business

For a BC employer, a standard non-compete in an employment contract often protects nothing and can signal overreach to a judge. A tightly drafted non-solicitation and confidentiality package usually does more. For a buyer of a business, the vendor's non-compete is a core protection of the purchase price, and it should be tied clearly to the sale, limited to the business actually bought, and supported by its own consideration. Sellers should negotiate scope before signing, because courts will strike, not trim, an unreasonable covenant. Example: A Vancouver software firm buys a competitor's assets and requires the founder to agree not to run a competing product business in Western Canada for three years. A court is far more likely to enforce that covenant than the same restriction placed on a salaried developer.

Risks and common mistakes

Using a broad non-compete for ordinary employees when a non-solicitation clause would do the job. Describing the restricted area or activity in vague terms that a court cannot apply. Assuming a court will cut an overbroad clause down to a reasonable scope. Introducing a non-compete mid-employment without fresh consideration. Agreeing with a competitor not to hire each other's staff, which can be a Competition Act offence.