Restrictive Covenants - Detailed Analysis
Last Updated: October 2022
(a) Separate Obligations within the Same Clause
The upholding of one restraint while refusing to uphold another in the same clause may be a permissible form of severance, providing they are covenants of a different type, e.g. covenants against competing and soliciting, and not covenants of the same type, e.g. two covenants against competing. However, as noted below, further judicial consideration of the Supreme Court of Canada’s decision in Shafron v. KRG Insurance Brokers is necessary before it can be stated this is definitively the case.
In an Ontario decision, W.R. Grace & Co. of Canada Ltd. v. Sare et al., the court refused to enforce a non-competition covenant because of ambiguity in the use of the word “territory.” However, the non-solicitation restraint, though it prohibited solicitation in the same ambiguous “territory” and was part of the same clause, was upheld. The court held that the geographic prohibition was of no consequence since the covenant restrained solicitation only of actual customers. It further held that the clause contained two separate obligations or restraints, not one.1
In light of the Supreme Court of Canada’s decision in Shafron, it is uncertain whether severance may be applied within the same clause where the covenants are separate obligations and of a different type. The court in Shafron noted that some “cases have accepted that severance might be applied if the severed parts are independent of one another or can be severed without the severance affecting the meaning of the part remaining” (emphasis added), but then went on to suggest these cases were not an appropriate view of the law.2 Notably, however, in the only Canadian decision cited by the court for the proposition that it later rejected (application of severance where the severed parts are independent of one another), the covenants at issue were all forms of non-compete restraints.3 They were not covenants of a different type, i.e. a restraint on competition and a restraint on solicitation, as in the W.R. Grace decision.
Certainly, there are very good policy grounds not to apply severance to save one covenant where the court has refused to enforce a covenant of the same type within the same clause (or in a separate clause, for that matter). Application of severance in such circumstances would encourage employers to draft alternative clauses, hoping the court will enforce one.
However, where the clauses are of a different type, i.e. a non-competition covenant and a separate non-solicitation covenant, it is submitted that the same policy against enforcement of one and not the other does not exist and courts should be prepared to enforce a separate obligation, whether it exists in the same clause (as in W.R. Grace) or a separate clause. Where the obligations exist in the same clause, depending on the wording, they may be more appropriately interpreted as separate clauses in an agreement rather than as one indivisible clause,4 with one enforceable and the other not.
This indeed was the approach that an Alberta Court, after Shafron, was prepared to take in respect of a clause that contained both non-competition and non-solicitation covenants after finding the former was not enforceable. The court held that it “would have been prepared to go so far as to conclude that the Supreme Court of Canada did not intend that different concepts expressed in one paragraph could not independently be enforced because this would then become a criticism of the legal drafting or style of the document rather than its substance.” However, having held the defendant did not solicit the plaintiff’s clients, the court did not have to make that finding.5
- W.R. Grace & Co. of Canada Ltd. v. Sare et al., 1980 CanLII 1568 (ONSC) at pp. 13-14.
- Shafron v. KRG Insurance Brokers (Western) Inc.,  1 SCR 157, 2009 SCC 6 (CanLII), at paras. 35-37.
- T. S. Taylor Machinery Co. v. Biggar (1968), 1968 CanLII 588, 2 D.L.R. (3d) 281 (Man. C.A.), at p. 282.
- Indeed, it is more common to see covenants drawn as separate clauses of an agreement than in the same clause, in which case the courts will more readily view them as severable if one does not survive scrutiny. The practice of including separate clauses each containing covenants of a different kind is not without risk, however. In American Building Maintenance Company Ltd. v. Shandley, 1966 CanLII 428 (BCCA), Bull J.A., in concurring reasons at p. 534, held that three separate covenants forbidding competition, solicitation and disclosure were each “severable, clear and unambiguous and can be separately and adequately enforced without reference to or affecting the others” but refused to enforce the non-competition covenant on the basis that the restraints on solicitation and disclosure were sufficient and hence the restriction on competition “of necessity must constitute nothing more or less than a covenant to restrain the respondent from business competition.”
- The Travel Company Ltd. v. Keeling, 2009 ABQB 399 (CanLII), at para. 67.