When it comes to non-compete clauses, the Civil Code of Quebec clearly sets out the required elements:
2089. The parties may stipulate in writing and in express terms that, even after the termination of the contract, the employee may neither compete with his employer nor participate in any capacity whatsoever in an enterprise which would then compete with him.
Such a stipulation shall be limited, however, as to time, place and type of employment, to whatever is necessary for the protection of the legitimate interests of the employer.
The burden of proof that the stipulation is valid is on the employer.
A non-compete clause must therefore be limited in terms of duration, geography and nature of activities. However, there is a fourth criteria that we must not forget about : a non-compete clause must be limited to what is necessary to protect the legitimate interests of the employer.
Note that each of the limitations must be expressed in clear and precise terms; ambiguity, even for a single element, can lead to the entire clause being declared invalid as it will be impossible to determine whether the clause as a whole is reasonable or not. Indeed, our courts will not modify a non-compete provision to make it valid. A non-compete clause must therefore be carefully be drafted to ensure its validity. To give but one example of what has been deemed, at the interlocutory stage, as prima facie ambiguous, the Superior Court of Quebec, faced with the territory of the “région métropolitaine de Montréal”, was left questioning what the limits of the territory really were at the time the employment contract was concluded. The absence of evidence dissipating the ambiguities raised by the Court or regarding the intention of the parties rendered the clause, at the interlocutory stage, unreasonable and unenforceable.
A review of the case law indicates that a time limitation ranging from six to twelve months have rarely been deemed unreasonable. Any limitation over twelve months must be clearly justifiable in light of the specific context. In terms of geography, it should generally be limited to the area in which the employee habitually exercises his functions, but there are a number of exceptions that could require a larger territory, such as the specialization of the company and the few competitors on the market.
One point to remember is that a non-compete clause will not be enforceable if the employer terminated the employment contract without a serious reason or if the employer gave the employee reasons to terminate the contract (section 2095 of the Civil Code of Quebec).
We note that section 2089 of the Civil Code of Quebec does not explicitly refer to non-solicitation clauses. Courts have generally been more lenient when determining the validity and enforceability of such clauses given their less constraining nature. This being said, the clause must still be reasonable in the circumstances. Moreover, there is a debate in case law as to whether or not the elements set out at section 2089 of the Civil Code of Quebec also apply to non-solicitation clauses.
In all cases, determining the appropriate coverage of restrictive covenants in Quebec will require a careful analysis of the position to be held by the employee, the nature of the industry and its activities and even its share of the market.
Lastly, we note that based on the current state of the case law, restrictive covenants included in contracts for the sale of a business will be analysed based on similar criteria as those set out in section 2089 of the Civil Code of Quebec but with much more flexibility than if they had been found in an employment contract.