Restricting Restrictive Covenants

April 2, 2012

By Brad Smith

The Ontario Court of Appeal in Veolia ES Industrial Services Inc. v. Brulé has confirmed the importance of proper drafting and the difficulty of enforcing restrictive covenants.

Mr. Brulé sold his business to Veolia and entered into a restrictive covenant. As a result of drafting that was described as unfortunate, the non-competition did not start to operate until approximately 2 years after Mr. Brulé’s employment ended. The trial judge found the non-solicitation clause was reasonable and severed the words from the clause that delayed its enforcement to give effect to what the trial judge thought were the parties’ intentions.

The Court of Appeal disagreed on both points. Without any discussion, the Court of Appeal stated that the restrictive covenant that commences two years after Mr. Brulé ceased to be employed by Veolia is “clearly unreasonable and unenforceable”. The Court of Appeal confirmed that a restrictive covenant is prima facie unenforceable unless the party seeking to enforce it can establish it is reasonable.

A court may only use what is known as blue-pencil severance to remove a part of a restrictive covenant if it is trivial and parties would have agreed to the change without also changing some other aspect of the agreement. The Court of Appeal stated the impugned language was not trivial. Nor would the parties have agreed to the change without changing parts of the agreement.

The lesson for employers is to carefully draft any restrictive covenant and be prepared to demonstrate that it is reasonable.