Drafting restrictive Covenants: The importance of clarity
By Jean Lemoine and Francis P. Donovan, Ravinsky Ryan Lemoine, L.L.P.
Restrictive covenants such as noncompetition and non-solicitation clauses have become a common feature in employment contracts, contracts for the sale of a business and a variety of other commercial transactions. In Canada, Courts are generally more inclined to consider such covenants as being excessive – and therefore invalid – in employment matters than in business matters. However, what of the very common hybrid situation in which the seller of a business remains for a time as an employee after the sale?
The recent Supreme Court of Canada case of Payette v. Guay illustrates the importance of clarity in drafting restrictive covenants in the context of such a transaction. The trial Court in this case interpreted the restrictive covenants as a post-sale employment matter, with the consequence that the clauses were held to be invalid. This decision was then overturned by the Quebec Court of Appeal. Finally, the Supreme Court was forced to rely on various linguistic and contextual “clues” in order to interpret the clauses in question as being valid, concluding that they had been agreed to in consideration of the sale of a business.
The lesson to be drawn from this case is that time spent on careful drafting (e.g. expressing in this case that the covenant is made in consideration of the sale) is time well spent, as it can prevent an unwanted judicial odyssey for the client.
Jean LemoineRavinsky Ryan Lemoine, L.L.P., Montreal, Canada
T: +1 514 866-3514
Francis P. DonovanRavinsky Ryan Lemoine, L.L.P., Montreal, Canada
T: +1 514 866-3514
Jean Lemoine and Francis P. Donovan are seasoned litigators at Ravinsky Ryan Lemoine, a reputable Canadian law firm which provides its clients with personalized and high quality service, with a special emphasis on tax, commercial and corporate matters, including all forms of taxation, estate planning, mergers and acquisitions, corporate reorganizations, as well as tax and commercial litigation.
published: September 2015 l Photo: bakerjarvis - Fotolia.com