Restrictive Covenants - Detailed Analysis

Last Updated: October 2022

(c) Geographic Breadth

While the geographic breadth of a covenant will be assessed for reasonableness in many instances, in cases where a non-solicitation clause is contested, the geographic breadth may not be an issue.  Provided other aspects of the covenant are reasonable, the lack of a geographic restriction will not be problematic. Thus, a prohibition relating to “customers of the company” at the time of termination or within a period of 12 months prior to termination was reasonable.1

Indeed, the Supreme Court of Canada has confirmed that, unlike a non-competition clause, a non-solicitation clause does not generally require a territorial limitation to be reasonable. In view of the modern economy and technology, customers are no longer limited geographically, rendering territorial limitations, in general, obsolete.2

A non-competition covenant that covered mainland Nova Scotia was reasonable where a large part of the former employee’s business was transacted in Halifax but he had serviced customers outside of this area as well.3  A clause prohibiting competition by a veterinarian within a radius of 25 miles from Steinbach, Manitoba, was reasonable.4

A prohibition on an insurance adjuster competing within 25 miles of Victoria was reasonable5, whereas a clause which prohibited doing business with former clients of an insurance business was unreasonable because it would purport to restrict such competition not only in the vicinity of where the agency did business, but even if the employees “relocated to the far reaches of Ontario or, for that matter, elsewhere in Canada.”6 Similarly, a clause which prohibited the acceptance of employment where the former employer’s trade secrets or confidential information would be “highly useful” to the new employer and “highly likely” to be disclosed to the competitor was unreasonable, as it could apply to all of Canada and to markets abroad.7

Where a non-competition agreement prohibited the operation of a dental office within a radius of 15 kilometers, the measurement was to be made by a straight line from the former dental office, i.e. “as the crow flies”, not by the distance travelled along existing roadways.8 In another dental case, the term “within a five-kilometer radius of (the dental practice)” was held to be clear and specific, referring to the radius and not driving distance.9

A covenant that prohibited being “associated in any way with any company or business which offers or sells goods or services in North America which compete with any goods or services of the Company” was not enforceable where the company, though Canadian based, did little business in Canada and there was no evidence it did business in Mexico or the Caribbean.  The court also criticized the breadth of the covenant in that it would forbid the defendant to “accept a contract position (be associated in any way) as a janitor (or bus driver) in Outer Mongolia for a Chinese Company, if that company sold polyurethane in North America.”10  Similarly, a clause that prohibited competition in North America was overly-broad where the company, at the time the covenant was executed, did business in Canada and the United States but did not establish the covenant should extend to Mexico or the Caribbean.11

A covenant’s use of the words “Brantford Peninsula” in relation to a real estate agent’s employment contract was ambiguous.12

Sale of a Business

As is the case in assessing whether the length of a covenant is reasonable, the courts will give more deference to the agreement of the parties on the geographical breadth of the covenant when it is negotiated in the context of the sale of a business as opposed to a covenant contained in a normal employment relationship.13  Where the business of a natural gas and oil rigging company had been concentrated in certain regions of Saskatchewan and Manitoba, it was nonetheless reasonable to prohibit competition for a period of time in the “Provinces of Western Canada”.  The court found that the very nature of the drilling business was designed to be mobile and that the “scene of the action” can and does change.14

  1. Atlantic Business Interiors Limited v. Hipson et al, 2004 NSSC 32 (CanLII) at para. 46, affirmed 2005 NSCA 16 (CanLII), at para. 49. See also W.R. Grace & Co. of Canada Ltd. v. Sare et al., 1980 CanLII 1568 (ONSC) at pp. 12-13. Though query whether the possibility of soliciting clients in a territory beyond the territory served by the former employer might render a clause too broad. See the approach adopted by the Ontario Court of Appeal in HL Staebler Co. v. Allan, 2008 ONCA 576 at para. 50 regarding a prohibition on “doing business” with customers.
  2. Payette v. Guay inc., [2013] 3 SCR 95, 2013 SCC 45 (CanLII), at paras. 69 and 73.
  3. Atlantic Business Interiors Limited v. Scott Hipson et al., 2004 NSSC 32 (CanLII), at para. 49, though the covenant was not upheld on other grounds.
  4. Friesen v. McKague, 1992 CanLII 4023 (MBCA) at p. 9.
  5. S.J. Kernaghan Adjusters Limited v. Kershaw, 1978 CanLII 260 (BCSC).
  6. HL Staebler Co. v. Allan, 2008 ONCA 576 at para. 50.
  7. Mercury Marine Ltd. v. Dillon et al., 1986 CanLII 2602 (ONSC) at p. 5 (application for interlocutory injunction).
  8. Dr. Jack Newton Dentistry Professional Corporation v. Towell, 2005 CanLII 37351 (ONSC) at paras. 16-18 (application for an interim injunction).
  9. Parekh et al v. Schecter et al, 2022 ONSC 302, at para. 51.
  10. Madison Chemical Industries Ltd. v. Walker, 2000 CanLII 22606 (ON SC) at paras. 12, 20.
  11. Ceridian Dayforce Corporation v. Daniel Wright, 2017 ONSC 6763 (CanLII), at para. 49.
  12. Revel Realty Inc. v. Costabile et al, 2022 ONSC 3373, at para 73.
  13. Payette v. Guay inc., [2013] 3 SCR 95, 2013 SCC 45 (CanLII), at para. 58.
  14. Ensign Drilling Inc. v. Lundle, 2007 ABQB 357 at para. 96.