Free Case Study On Applicable Law: The Applicable Law For This Case Is The British Columbia Employment Standards Act.

Statement of the Issue: Can an employer restrict a former employee from working with a competitor by including a restrictive covenant in their employment contract?

Pertinent Facts: In 1987, the defendant, Mortimer Shaft, sold his insurance agency to ABC Insurance Brokers. He continued to work for the newly named ABC Insurance Brokers (Western) until 2000. During his time working for Western, Shaft entered into five employment contracts with ABC and their eventual owner Intercity Investment Corporation. Each employment contract had a restrictive convenient that stated in relevant part, that if upon Shaft left his job for any reason, he would be restricted from working with another insurance agency in the metropolitan Vancouver area for a period of three years unless he was terminated without cause. The last employment contract Shaft entered into was in 1998. It was due to expire on December 31, 2000. In January 2001, after the contract expired, Shaft found employment in another local insurance broker.
Analysis and Discussion: Under the law, employers can restrict their former employees from working with a competitor if they include a restrictive covenant in their employment contract. However, if the restrictive covenant is so limiting as to create an unreasonable restraint on trade for the former employee, a court may find that it goes beyond what is reasonably necessary to protect the employer’s legitimate interest in protecting their business. Under this circumstance a court will most likely find the covenant unenforceable. When a restrictive convenient exists, a court will analyze its geographic coverage, the time period in which it is in effect and the extent of the activity that is prohibited in determine whether it is enforceable. In this case, Intercity did include a restrictive covenant in the employment contracts with Shaft. However, the fact that it prohibits Shaft from working in the only field he knows, for three years in the city he has lived in for at least 12 years seems over restrictive.
Conclusion: Intercity’s restrictive covenant is unenforceable because it substantially interferes with Shaft’s basic ability to make a living in his profession as an insurance broker.