Restrictive covenants — clauses that restrict someone from competing, or from soliciting customers or employees, after a relationship ends — are common in employment contracts and in agreements for the sale of a business. But they are also frequently unenforceable, because the law is cautious about clauses that limit a person's ability to earn a living or to compete. The leading Supreme Court of Canada decision on how these clauses are judged is Shafron v. KRG Insurance.
The general reluctance to enforce restraints
Courts start from the position that restraints of trade are presumptively unenforceable, and will only uphold them if they are reasonable. Reasonableness is assessed in terms of scope: the activities restricted, the geographic area covered, and the duration of the restriction. A clause that goes further than necessary to protect a legitimate interest is likely to fail.
Shafron v. KRG Insurance (2009)
In Shafron, the Court emphasised that a restrictive covenant must be both reasonable and unambiguous. If the wording is unclear — for example, a geographic area that cannot be defined with certainty — the clause can fail for ambiguity alone. Just as importantly, the Court confirmed that courts will generally not rewrite an overly broad covenant to make it enforceable. In particular, judges will usually not "read down" or sever parts of a clause to save it (outside narrow exceptions), which means a clause drafted too broadly tends to be struck down entirely rather than trimmed to a reasonable size.
Employment versus sale of a business
The Court also recognised that context matters. Restrictive covenants given by an employee are scrutinised more strictly than those given by the seller of a business. When someone sells a business, the buyer is often paying for goodwill and reasonably expects the seller not to immediately compete and take it back; courts are somewhat more willing to enforce a reasonable covenant in that setting. In the employment context, the imbalance of power and the effect on a person's livelihood make courts more demanding.
Practical drafting lessons
- Keep restrictions no broader than necessary in activity, geography, and time.
- Use clear, unambiguous language — vagueness can be fatal.
- Consider whether a narrower non-solicitation clause would protect the real interest, instead of a full non-compete.
- Remember that courts usually will not fix an overbroad clause for you.
Note: Enforceability is fact-specific and context-dependent. General information only, not legal advice.
This article is general information for educational purposes only and is not legal advice. For advice on your situation, book a consultation.