A non-compete clause is a contractual provision where one or more contracting parties undertake not to compete with the other contracting parties under certain conditions.
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Let’s look at the key elements of a non-compete provision in Quebec!
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Table of Contents
What Is A Non-Compete Clause In Quebec
A non-compete clause is a contractual provision where one party agrees not to compete with another party.
This type of clause is commonly found in commercial contracts, employment agreements, shareholder agreements, or any form of partnership or joint venture.
In the province of Quebec, a non-compete provision must respect specific requirements for the courts to enforce it.
Since a non-compete provision can adversely impact a party, the Quebec laws require that the provision respect certain legal requirements and be carefully drafted.
Otherwise, the courts will not enforce the non-compete provision.
In essence, a non-compete provision is a restrictive covenant where one party agrees that it will not compete with another party, or engage in a certain type of activity, in a certain territory, for a certain period of time.
For example, the shareholders of a startup will agree to a non-compete provision in a shareholder agreement where the shareholders agree that if they leave the company, for a period of 12 months, within the City of Montreal or territory of Quebec, they will not engage in a commercial activity similar to that of the startup.
Note that the formulation of the non-compete clause has to be reasonable in purpose and scope.
Keep reading as I will go over this aspect later in this article.
Non-Compete Clause Requirements
A non-compete clause governed by Quebec laws should include three elements: a time limit, a geographic area, and a restriction on activities.
If any of the three elements is missing or that the court considers unreasonable, the non-compete provision will fall and will not be enforceable.
A time limit is a specific stipulation as to how long the non-compete clause will produce legal effects.
If a party is agreeing to a permanent non-compete obligation versus an obligation of several months, the impact is significantly different.
The more it’s unreasonable in the circumstances, the more the courts will scrutinize the provision and potentially declare it unenforceable.
The geographic area refers to the territorial scope defined by the parties where the non-compete obligation applies.
For example, will an employee be prohibited to compete in the province of Quebec only, in Canada, or globally?
The third aspect is the restriction on the activities.
It’s important that the non-compete clause be clear as to the nature of activities that are restricted under the provision.
It’s important to carefully word and defines the type of activity that is prohibited under the non-compete clause to ensure the provision remains valid.
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Non-Compete Clause In Employment Contracts
In the context of employment contracts, the Civil Code of Quebec specifically protects employees on the topic of non-compete provisions.
Article 2089 of the Civil Code states that “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 compete with him.”
In other words, for a non-compete provision to be enforced, it must be “in writing” and “in express terms”.
Then, the second paragraph of Article 2089 of the Civil Code states that “the stipulation shall be limited as to time, place and type of employment, to what is necessary for the protection of the legitimate interests of the employer”.
This provision establishes three key requirements: limit as to time, place, and type of employment and what is necessary for the protection of the employer’s legitimate interest.
In essence, since employers tend to have greater leverage over their employees, the Civil Code attempts to balance the forces between the employer and the employee.
As a result, an employer can have a non-compete enforced to the extent it serves to protect its legitimate business interests.
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Non-Compete Enforceability
The Quebec courts have the duty to ensure that non-compete provisions respect the requirements of the law, and are reasonable in scope and purpose.
The reasonableness of the provision will generally lead to legal debates before the court.
If a party has carefully drafted a non-compete provision with a reasonable time limit, geographic area, and scope to protect legitimate business interests, the courts will have no problems enforcing the provision.
However, if a party has used its bargaining power to impose broad and highly restrictive obligations on another party, the Quebec courts will not hesitate to invalidate the non-compete provision.
In commercial contracts, the courts will consider additional factual circumstances to assess whether a non-compete clause should be enforced or not, such as:
- The parties’ bargaining power
- Representation by attorneys
- The parties’ level of sophistication
- The nature of their business activities
- The manner the agreement was negotiated
- The commercial value of the transaction
When two businesses having similar negotiating power and represented by counsel agreed on the terms of a non-compete provision, the court will have the tendency to enforce it and give it a broader interpretation.
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Burden of Proof And Remedy
In the event of a legal dispute in court, the party looking to enforce the non-compete provision has the burden to prove that the provision observes the legal requirements and is reasonable in the circumstances.
If the court considers that the provision is enforceable, it may grant different types of remedies such as injunctive relief or other types of safeguard orders.
In many cases, a party looking to seek the enforcement of a non-compete provision will ask the court to issue a provisional injunction.
To the extent the party seeking an injunction is able to demonstrate the urgency, the irreparable harm, and the balance of inconveniences, the court will grant a provisional injunction as the legal proceedings remain pending.
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Takeaways
So there you have it folks!
What is a non-compete clause?
In Quebec law, a non-compete clause is a contractual provision where one party agrees not to compete with another party.
This type of restrictive covenant should include three key elements: a time limit, geographical limit, and target specific activities.
If you’re looking to negotiate a non-compete provision or need legal advice, be sure to contact a qualified business lawyer to advise you.
If the non-compete clause does not respect the requirements of the law and is broad or unreasonable, your non-compete clause will not be enforceable in Quebec.
