Non-Compete Agreements in Alberta: Enforceability and Key Considerations

In Alberta, as the business landscape grows increasingly competitive, it's more important than ever to protect your company’s intellectual property, client base, and workforce. One common method employers use to safeguard their interests is through non-compete clauses in employment contracts. But how enforceable are these clauses in Alberta?

Employers often create agreements with employees that contain non-solicitation and non-competition clauses. Many employment contracts and employment policy manuals contain Non-Solicitation and/or Non-Competition clauses. These clauses are also known as “restrictive covenants”.

Understanding Non-Compete Clauses

A non-compete clause is a contractual term that restricts an employee from working for a competitor or starting a competing business for a certain period after leaving your company. Typically, they are created to protect employers from competition when employees resign or are fired.

Canadian courts-including those in Alberta-are generally skeptical of non-compete clauses. The law considers them a restraint on trade and only enforces them when they are deemed reasonable in scope, geography, and duration.

Alberta's Legal Context

There is no specific statute in Alberta that governs non-compete clauses. Instead, the courts rely on common law to make decisions. This means that their treatment of non-compete disputes differs on a case-by-case basis. Alberta still operates under the common law when it comes to Non-Competes. In other words, Albertans look to the courts to determine whether a Non-Compete is enforceable or not.

Although there are multiple contexts in which non-compete clauses can be used (commercial, for example), non-competes in the employment context are usually not enforceable in Alberta. When an employer seeks to impose a Non-Compete on an employee, the court presumes that the Non-Compete is unenforceable. Courts start from this position because of a perceived imbalance in bargaining power between an employee and their employer, as well as a perception that employees are not given extra consideration to agree to a Non-Compete.

Put another way, courts tend to view Non-Competes in employment contracts as unreasonable restraints on free trade and are therefore reluctant to enforce them. Accordingly, courts impose a burden on the employer to prove that enforcing a Non-Compete is a reasonable means of protecting its legitimate business interests.

Factors Influencing Enforceability

Courts tend to ask themselves two questions when determining whether to enforce a Non-Compete:

1. Is a restriction on competition necessary at all, or would less restrictive measures such as a non-solicitation covenant work?
2. If a Non-Compete is required, is the scope of that clause no broader than is necessary to protect the employer’s asserted interests?

Courts will normally consider the following factors when deciding whether the scope of a Non-Compete is reasonable and therefore enforceable:

• The interests an employer is trying to protect by imposing a Non-Compete.
• Whether there are less restrictive means of protecting an employer’s interests.
• The geographical scope of the Non-Compete.
• The temporal scope of the Non-Compete.
• The scope of activities that are prohibited by the Non-Compete.

Recalling that a Non-Compete must be no broader than reasonably necessary to protect an employer’s business interests, the most common reason that courts refuse to enforce a Non-Compete usually relates to the scope of the clause.

Examples of Unenforceable Non-Competes

Courts in Alberta have refused to enforce Non-Competes for a variety of different reasons. Since courts are reluctant to enforce Non-Competes that extend beyond the geographical scope in which a business operates, an employer operating a business exclusively in Calgary would not likely be able to enforce a Non-Compete that prevents an employee from working in the same industry elsewhere in Alberta.

Likewise, since courts are reluctant to enforce Non-Competes that last too long, an employer would not likely be able to enforce a Non-Compete that lasts forever, or even one that lasts for two or more years. Courts are reluctant to enforce Non-Competes that cover a wide range of business activities, so an employer specializing in manufacturing casing, tubing, and other products for use in the resource extraction industry, for example, would not likely be able to enforce a Non-Compete on an employee that generally extends to working in metal and/or machinery manufacturing.

Non-Compete Clauses vs. Non-Solicitation Clauses

As previously mentioned, sometimes courts favour less restrictive clauses in place of non-competes. A non-solicitation clause restricts an ex-employee from poaching clients, employees, or suppliers from their previous company. It does not attempt to influence an ex-employee’s future employment in any way.

Similar to a non-compete, a non-solicitation clause cannot be too limiting in scope to be enforceable. Courts also evaluate non-solicitation clauses on a case-by-case basis when resolving disputes.

Takeaways for Employers

Businesses must take an exceptionally tailored approach to drafting Non-Competes. They need to be drafted like Goldilocks likes her porridge: just right. The broader the Non-Compete, the less likely a court will enforce it. Courts will always look to the least restrictive means of limiting free trade while also affording sufficient protection for businesses. In most cases, a non-solicitation clause may do the trick. These clauses are less restrictive, as they only extend to preventing a previous employee from poaching the employer’s clients and/or business.

Customize clauses - Avoid copy-paste contracts. A well-drafted non-compete clause can be an effective tool to protect your business, but only if it’s done right. Trying to overreach can lead to the entire clause-and sometimes the whole agreement-being thrown out.

Advice for Employees

When starting a new job in Alberta, many employees are asked to sign contracts that include non-compete clauses. However, non-compete clauses are often misunderstood - and in many cases, they are not legally enforceable. In Alberta, most non-compete clauses are not enforceable unless they are narrowly written and justified by legitimate business needs. If any of these elements are unreasonable, the entire clause is likely invalid.

Read it carefully. Ask questions. Seek legal advice. If you have already signed a contract with a non-compete clause, you still have options. If you’ve been asked to sign a restrictive covenant or are facing enforcement of a non-compete, speak with an employment lawyer.

Need Legal Help Navigating Your Employment Contract?

Non-compete clauses can be enforceable in Alberta, but they are not upheld often. This is because they must be clear, reasonable, and necessary in the eyes of the court. Because the government often aims to protect individuals and their right to employment, overly broad or overly restrictive clauses will likely not be recognized.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Laws may change over time and vary by jurisdiction.

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