October 15, 2024
Non-compete agreements are common in employment contracts and sales of businesses. They are not always enforceable. Public policy favours vigorous competition, to maintain a free market for goods or services. Non-compete agreements will only be enforced if the party who benefits from the agreement has a legitimate interest that deserves protection.
THE CASE
The latest word on the subject in Ontario is the Ontario Court of Appeal decision in Dr. C. Sims Dentistry Professional Corporation v. Cooke. This case involved the sale of a dental practice. The non-compete prevented the vendor from engaging in the practice of dentistry or permitting his name to be used in such a practice, for a period of five years following his association with the Practice within a radius of 15 km of the premises where the dental office was located. The vendor was also to work as an employee of the practice for a minimum of two years, subject to termination upon 90 days notice by either party.
The purchaser gave notice of termination after more than two years post sale. The vendor then went to work at a dental office about 3 km distant from the original office. The purchaser sued.
The vendor took the position that the non-compete was invalid and unenforceable.
The Court of Appeal agreed with the trial judge that the non-compete was reasonable and enforceable. Key points clarified in this judgment include:
- In the context of a sale, a non-compete will be presumed to be reasonable unless the buyer can prove that it is unreasonable
- The parties negotiating a sale agreement have greater freedom to contract than in the employment context
- The parties to a commercial agreement for the purchase and sale of a business are best placed to determine what is reasonably required to protect the purchaser’s interest in the goodwill.
- Goodwill encompasses not only the existing customer base but also the ability to attract new patients from within the area served by the business or its “marketplace”
- A reasonable duration of a non-compete depends upon the facts and context of the particular transaction
- Five years is not presumed to be unreasonable
- The territory to which a reasonable restrictive covenant applies is limited to that in which the business being sold carries on its trade or activities as of the date of the transaction
- To be reasonable, the geographical restriction does not need to precisely map out the trading area of the business
- Defining the geographical limitation by a reasonable radius is acceptable
WHAT WEILERS LLP CAN DO TO HELP YOU
The commercial and employment lawyers at Weilers LLP are adept at helping clients draft agreements, whether commercial purchase and sales; licenses; or employment contracts; which should be enforceable.
If you have a dispute over a clause in an existing agreement, our litigation team has the experience and skills to bring the litigation to a conclusion in the least painful and least expensive fashion possible.
So, whether you need to get it in writing, or need advocacy after the fact, call us. Weilers LLP might be the right lawyers for you.