What should a 'restrictive covenant' contain?

Employment contracts are fickle things – so it’s essential that HR leaders are careful when constructing them

What should a 'restrictive covenant' contain?

Employment contracts are fickle things – so it’s essential that HR leaders are careful when constructing them. One of the main areas of contention lies with restrictive covenants, which have the potential to ruin a business.

Imagine having invested all that time in recruitment, in training and developing a key employee, only for them to hop ship to a competitor. What do you do?

Job hopping is a serious concern for employers, especially considering the skills shortage currently rampant in Canada. According to a report from Indeed, 73% of Canadian employers have chosen not to interview someone who’s had a list of short-term jobs at previous companies. Moreover, 27% of Canadian employers say that they have a negative view of people with a history of short-tenure.

And, despite the negative connation on short-term tenures, employees would be foolish to pass up a golden opportunity – even if it’s being offered by a competitor.

This in itself poses a problem for HR. You don’t want to lock workers into iron-clad contracts, but you can’t risk letting your top talent go to a rival.

This is where complex restrictive clauses come in.

Often cited as ‘non-compete clauses’, these phrases are built into employment contracts to mitigate any potential harm coming to organizations.

There are three general components of a clause. The first deals with temporal scope – essentially, how long the clause will extend to after the employee has left. The second is reach – does it pertain only to Canada or to global competitors too?

Thirdly, you have to know exactly what you’re prohibiting the employee from doing. Will you be stopping them becoming involved in one single area – such as sales? If so, you need to define it explicitly in the document.

And whilst this may sound simple in theory, drafting them can be a legal minefield.

Don’t miss out HRD Canada’s upcoming webinar with Laura Williams, founder of Williams HR Law, where you can learn all the intricacies and pitfalls of restrictive covenants.

Book your place here.

 

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