Restrictive Covenants - Detailed Analysis

Last Updated: October 2022

Table of Contents

A. Introduction and Overview

B. Detailed Discussion

1. Legitimate Proprietary Interest

(a) Confidential Information as a Legitimate Proprietary Interest in Non-Compete or Non-Solicit Clauses

2. Reasonableness Between the Parties

(a) Onus

(b) Length

(c) Geographic Breadth

(d) Nature of Activities Restricted

(e) Characterization of the Covenant: Non-Compete, Non-Solicit or Hybrid?

(f) Confidentiality Covenants

(g) Restraints of Trade in the Context of the Sale of a Business

(h) Restraints of Trade that do Not Prohibit Competitive Activity

3. Reasonableness With Respect to the Public Interest

4. All Surrounding Circumstances

5. Employment Contract Attached to Sale of a Business

(a) Restraints of Trade Connected to Arrangements Other than Employment or the Sale of a Business

6. Lack of Ambiguity

(a) Covenants Arising from Employment Agreements

(b) Covenants Arising from the Sale of a Business

C. Other Issues of Importance to Restrictive Covenants

1. Has there Been a Breach?

(a) Declaratory Relief Prior to a Breach

2. Severance

(a) Separate Obligations within the Same Clause

(b) Severance of a Covenant Connected to the Sale of a Business

3. Rectification

4. Is the Clause in Restraint of Trade?

5. Enforceability of Financial Consequences for Competitive Activity

(a) Breach of a Covenant that Attracts Financial Consequences

(b) Competitive Activity Which is Not Prohibited but Attracts Financial Consequences

(c) Judicial Approach to Stipulated Remedy Clauses

(d) Application of Judicial Approach to Stipulated Remedy Clauses in the Context of Departing Employees

6. Is the Restrictive Covenant Unenforceable Due to a Wrongful Dismissal?

7. Consideration

8. Can Third Parties be Subject to the Covenant or Obtain the Benefit of It?

9. Miscellaneous Issues

(a) Negligent Misrepresentation Connected to a Restrictive Covenant

(b) Corporate Amalgamations and Restructurings

(c) Termination of Employment Contract Other than through a Wrongful Dismissal

(d) Effect of Compensation on Enforceability of a Covenant

(e) Contract Renewals, Former Contracts, Expired Contracts

10. Judicial Interpretation of Certain Words or Phrases Used in Covenants

D. Table of Cases

1. Covenants Provided Outside the Sale of a Business

2. Covenants Connected to the Sale of a Business