All Worked Up Episode 5: The Employment Contract End Credits: Post-employment Obligations

Full episode transcript below:

Intro: This podcast is produced by Nelligan Law.

Dana DuPerron: Welcome to All Worked Up, the podcast where two employment lawyers break down real-life workplace issues that affect real people. I’m Dana DuPerron –

Jill Lewis: I’m Jill Lewis and we’re Senior Associates at Nelligan Law and we’re super excited to bring you this podcast aimed at making employment issues interesting, accessible for employees and employers. Hi, this is Jill –

Dana DuPerron: And this is Dana.

Jill Lewis: This is All Worked Up –

Dana DuPerron: – and today we’re talking about what’s got us All Worked Up –

Jill Lewis: What’s got us All Worked Up today?

Dana DuPerron: – in our second episode of our series on contracts 101 we’re talking about post-employment obligations. It’s got me All Worked Up.

Jill Lewis: I know, a really exciting topic.

Dana DuPerron: Super exciting. But OK, it’s kind of a big deal, right. And, you know, when we talked about termination clauses last episode, that’s one of those things that I feel like people kind of ignore when they’re looking at their contracts.

Jill Lewis: Yeah.

Dana DuPerron: Post-employment obligations are usually things that I feel like people actually pay attention to.

Jill Lewis: Yeah, especially when you’re in certain fields and you’re dealing with customer sales, finance people, tech people.

Dana DuPerron: Yeah. So like that’s kind of a boring term, right, post-employment obligations but what we mean by that is just any requirement that’s placed on you in a contract that applies after that contract is over. So usually a non-compete, non-solicit, confidentiality clauses, IP agreements, those are the big ones.

Jill Lewis: Yeah, non-disclosures maybe but – or yeah, that’s pretty much under confidentiality. Yeah, so the big ones being usually those non-competes and non-solicits, right.

Dana DuPerron: Yeah. So where do you want to start, with non-competes?

Jill Lewis: Let’s start with non-competes.

Dana DuPerron: OK.

Jill Lewis: So yeah, what are non-competes, what are non-compete clauses?

Dana DuPerron: A non-compete is a clause that says that you cannot work in this industry. You cannot compete with your employer for a certain amount of time after your employment ends.

Jill Lewis: Yeah.

Dana DuPerron: You can’t go work for a competitor.

Jill Lewis: Yeah, as easy as that and sometimes it’ll have a geographical perimeter or is that more –

Dana DuPerron: Well it would have to.

Jill Lewis: Yeah, it has to. So in Ottawa or in Ontario, or sometimes we’ve seen them like in all of Canada or all of North America and it’ll be sometimes time-restricted too.

Dana DuPerron: Yeah.

Jill Lewis: Six months, 12 months.

Dana DuPerron: Yeah. Well so OK, let’s back up on that then. So you’ve got this clause, OK. A non-competition clause is at first glance not enforceable. Courts don’t like to enforce them, right.

Jill Lewis: Right.

Dana DuPerron: There’s new legislation in Ontario that effective October of 2021 – I think it’s October 6, I’d have to double-check the exact date, I can’t remember –

Jill Lewis: Yeah, maybe 26 –

Dana DuPerron: Yeah, maybe 16 –

Jill Lewis: Maybe [laughs] –

Dana DuPerron: Maybe a complete other day. Some day in October 2021 non-competition clauses are unlawful in most circumstances. There are carveouts for a purchase of a business where someone’s staying on after a purchase of a business and for high-level executives, C-suite people. But generally not enforceable. If you have a contract from before that that has a non-compete clause –

Jill Lewis: Non-compete, robotic –

Dana DuPerron: Non-compete – yeah [laughs].

Jill Lewis: It is Friday afternoon; it has been a week –

Dana DuPerron: It has been a week. OK. So before October 2021, not enforceable at first glance but then the employer has to prove it’s reasonable and it’s necessary to protect their proprietary interests.

Jill Lewis: Right.

Dana DuPerron: So what you were talking about are the factors that they’ll look at to determine if it’s reasonable.

Jill Lewis: Thank you, thank you.

Dana DuPerron: So go.

Jill Lewis: OK, geographical location. So Ottawa does that make sense that – I’m trying to think of like an example –

Dana DuPerron: The whole world.

Jill Lewis: The whole world –

Dana DuPerron: Too broad.

Jill Lewis: OK, way too broad. Where you going to go work, on the moon, no [laughs].

Dana DuPerron: So boom, that clause probably done.

Jill Lewis: Probably done.

Dana DuPerron: Probably not enforceable.

Jill Lewis: North America could be too broad –

Dana DuPerron: Yeah.

Jill Lewis: – but maybe not. I mean that’s the thing is it all depends on the character of the employment and the proprietary interest that you’re trying to – so I’m trying to think of an example off the top of my head, like software –

Dana DuPerron: I’ll give you one. You know what’s always enforced?

Jill Lewis: Yeah?

Dana DuPerron: Or not always, talk to somebody, but often dentists and dentists often have –

Jill Lewis: Yeah, that’s a great one.

Dana DuPerron: – non-compete clauses that are like within five kilometres of your dental practice. So you can’t set up a practice where you’re going to go and poach all the clients that you had before and just even being there is enough to compete with their practice. But you could go six kilometres away and do it and those are ones that at least prior to this legislation would’ve been –

Jill Lewis: Yeah, usually been upheld.

Dana DuPerron: Yeah.

Jill Lewis: Yeah, absolutely.

Dana DuPerron: So that was geography.

Jill Lewis: Geography. Time, timestamp usually, you know, six months. Twelve months is usually what we see. Twelve months can sometimes be reasonable depending obviously on all the factors. But, you know, something like 24 months or five years that starts to get a little long, you know, the courts think are unnecessary.

Dana DuPerron: Yeah. I think 24 months is like the cap.

Jill Lewis: Yeah, yeah.

Dana DuPerron: Yeah, more than that is going to be a problem. So we’ve got has to be reasonable in terms of geography, has to be reasonable in terms of time and the last one, scope.

Jill Lewis: Scope.

Dana DuPerron: Yeah. So it can’t say that you can’t go to a competitor. You know, you’re like a software person, whatever working for ABC Corp –

Jill Lewis: OK [laughs].

Dana DuPerron: – and you can’t go work for – you know, doing like a software job, you can’t go to XYZ Corp which competes and work as a janitor. No, like that’s not –

Jill Lewis: That doesn’t make sense.

Dana DuPerron: It’s not the same job. It has to be a similar job.

Jill Lewis: Yeah.

Dana DuPerron: Yeah, it has to be reasonable in terms of scope and if a non-solicitation clause would do enough to protect that proprietary interest, that’s another factor that’s going to be looked at –

Jill Lewis: Usually that will do, right.

Dana DuPerron: Yeah.

Jill Lewis: So even if you have those non-competes in your contract, you’re still going to want to have it looked at by a lawyer before you start jumping ship or, you know, say you’re getting recruited or something like that. Just because you have it, doesn’t mean it’s enforceable. Judges don’t like to enforce.

Dana DuPerron: They don’t like to, but you also want to know it can be a pain to deal with them. So sometimes on the way out too you can also ask the employer to waive it. Just even say, you know, “I don’t think it’s enforceable anyway. Here’s my new job, will you waive it?” Sometimes they will.

Jill Lewis: You could ask your new employer, “Would you take on like some of the legal responsibility if I” –

Dana DuPerron: Yeah, or indemnify me if there’s –

Jill Lewis: Right.

Dana DuPerron: Yeah.

Jill Lewis: Because sometimes you do receive those letters that, you know, “We know you’re working for XYZ Corp” but like, you know, what’s going to happen if the letter is sent, maybe nothing.

Dana DuPerron: Yeah.

Jill Lewis: But if they try and sue you then rely on your new employer.

Dana DuPerron: If they’ll agree on the front end to take it and it’s usually like, you know, because courts might not want to enforce that, but it’s more likely to be enforced if you’re breaching non-solicit stuff. Like they’re not going to be happy if you’re poaching their business, that kind of thing.

Jill Lewis: Yeah. So let’s talk about non-solicits.

Dana DuPerron: Right.

Jill Lewis: Those are less restrictive, right. So non-solicit –

Dana DuPerron: Yeah, more likely to be enforced.

Jill Lewis: Much more likely. So non-solicits, you can’t – usually it’s you can’t steal clients of the business, that seems like that makes sense.

Dana DuPerron: Yeah. And also again it has to be reasonable. So typically you’re going to want to see it limited to clients or customers or potential clients or customers of whom or of which you had knowledge in the past like 12 months before employment or something – right before your employment ends.

Jill Lewis: Yeah, it could be a big company and maybe you have no idea this client – yes, yes.

Dana DuPerron: Yeah, exactly. Like you had no idea, so that’s a factor to consider. And that’s the biggest one that I think employers are most – like customers, clients, contractors, like people who – like suppliers, people –

Jill Lewis: Yes.

Dana DuPerron: – who if it’s going to harm their business, harm their bottom-line as you lure those people away, that’s going to be a problem. Same thing, like so there’s no geographical scope. There should be sort of that explanation of what a client, customer, whatever is and then it has to be time-limited still too.

Jill Lewis: Yeah, absolutely.

Dana DuPerron: It can’t be forever.

Jill Lewis: Absolutely.

Dana DuPerron: You can also have non-solicitation clauses that apply to employees, not being able to poach –

Jill Lewis: Steal your best staff, definitely.

Dana DuPerron: Yeah, yeah.

Jill Lewis: Especially on your way out, right. I mean it’s tempting. Let’s say you’re getting recruited or whatever, you’re a manager and you want to take –

Dana DuPerron: You’ve got a great team.

Jill Lewis: – you want to take your team with you.

Dana DuPerron: Yeah. And that’s where it could be a problem. Like, you know, I think generally the focus, the concern is on the customers and stuff but yeah, taking away all their great employees also, you know –

Jill Lewis: Also important.

Dana DuPerron: – also important and not looked favourably upon typically.

Jill Lewis: Yes. Yeah, exactly. Yeah, I mean I think judges have like a limit. They don’t want to restrict somebody’s ability to work, right, and make an income but I think they see that, you know, you’re in a position at a – with an employer and in a position of trust. You’re working with their clients, you’re working with the rest of the employees, you can’t just take them all when you leave.

Dana DuPerron: Yeah. And that’s also something like new employers will often have a clause in their contract too that says you’re not subject to any terms or obligations that you’re breaching if you go there, which you want to discuss those with them if that exists.

Jill Lewis: Right.

Dana DuPerron: And they’ll often say things like, “We don’t want you – like we want you to comply with any obligations that you have with a previous employer” and that’s because they don’t want the liability.

Jill Lewis: Yes.

Dana DuPerron: So they’re trying to be careful on the front end, which you don’t want to go into a new relationship lying to your new employer.

Jill Lewis: Exactly.

Dana DuPerron: That’s going to be a problem.

Jill Lewis: Yeah. Actually that’s something that a lot of employees don’t want to tell their employees about. Like, “I’m under a non-solicit, should I tell my employer?” Of course you should tell your new employer. They’ll work with you.

Dana DuPerron: Yeah.

Jill Lewis: They’ll just have you – it’s usually 12 months, what’s 12 months. They’ll usually have you just working maybe with a different team or whatever. Like it’s not –

Dana DuPerron: Or know that you can’t touch those files. It’s better for them.

Jill Lewis: Exactly, exactly. They want to know.

Dana DuPerron: Yeah.

Jill Lewis: They want to know upfront. So yeah, don’t be shy, you need to tell that to your new employer. So if you’ve got this – you see these in your contract, even if you’re not being terminated if you’re just resigning and you go into a new employer, it’s important to talk to a lawyer to understand what your obligations are to that past employer. Just because you’ve left doesn’t mean you don’t owe them anything.

Dana DuPerron: Yeah. And on that I just want to also say that when – you’re saying they don’t want to show it sometimes. They’re also worried that it’s like – that showing those clauses of their contract will like run afoul of their confidentiality clause or something else.

Jill Lewis: Right, yeah.

Dana DuPerron: Whereas like typically the old employer wants the new employer to know. It’s not usually –

Jill Lewis: Yeah. My gosh, yeah. Nobody’s really arguing about that. Yeah, so I wouldn’t worry about that either. That leads us into confidentiality agreements.

Dana DuPerron: Right. So at common law you have a duty regardless of anything – when I say at common law, I mean once you start working for someone even if nothing is written down in a contract, right, there is just a general legal obligation on employees to keep confidential the information that they gained by virtue of their employment to the extent that that’s confidential information.

Jill Lewis: Yeah.

Dana DuPerron: So you are working in a job, you get all this secret information about your business, your company –

Jill Lewis: Financials, like how much you’re selling things for and that type of –

Dana DuPerron: Yeah. You can’t go and turn around and spill the beans on that. Spill the tea.

Jill Lewis: Spill the tea. No spilling of the tea and that makes sense, right.

Dana DuPerron: Yeah.

Jill Lewis: And it’s only things that are confidential. So if it’s known, if it’s like public knowledge that certain clients work with an employer, OK that’s obviously not going to be confidential. Yeah, it’s the little stuff, right. The behind the scenes that you obviously can’t go tell a new employer and that’s just implied. So, you know, when we see them in contracts it’s –

Dana DuPerron: Yeah, it’s usually making it a bit more specific, right. Like it’s usually flagging the specific things that they want to keep confidential or like, you know, if they have third party agreements, those are also subject to a duty to keep confidential any information that you glean from that. So typically what it’s doing is just setting out – usually like setting down that that already exists so that they can say, “Hey, we brought this to your attention and you knew about this.”

Jill Lewis: Yeah, exactly. So not too much to change on that one usually when we see them but –

Dana DuPerron: Yeah, mostly flagging it for people –

Jill Lewis: – but it’s good to know just to discuss.

Dana DuPerron: The other big one, IP –

Jill Lewis: IP …

Dana DuPerron: – and proprietary information and that kind of thing. So again, the general rule is that any IP, so anything that’s covered by copyright, patent, trademark that you create during your employment and as a result of your employment belongs to the employer.

These IP agreements, you know, will often sort of specify – they’ll make you say whether you had any other inventions prior to. Sometimes they go a bit broader and say, you know, even if you make it outside of working hours but it’s at least – it’s at all related to our business whereas if you have a business on the side or something you’re going to want to talk to them about that.

Jill Lewis: Well and that one can get kind of tricky because I’ve certainly met a few tech people who just sort of have, I don’t know, like passion projects on the side. Like just things that they’re creating on their own time, and they are a little surprised to see that’s covered and, you know, anything I come up with is, you know, under the employer. So I will then tell that employee to go to the employer and let them know, “I” – yeah, or whatever, “I have” –

Dana DuPerron: Carve out, yeah, whatever that is –

Jill Lewis: Do some caving out. Yeah, carve that turkey.

Dana DuPerron: Yeah, carve it up [laughs]. And the other thing with that too is that people also don’t realize – and we’re not IP lawyers but we know sort of what to look for in these things and we have an IP team – that you have moral rights to things that you create.

Jill Lewis: Yes.

Dana DuPerron: And I remember from first-year law school that that means sometimes having like control over how an invention or something is used or displayed or like what the application for it or that kind of thing. And typically in these IP agreements you’re also waiving those moral rights which at common law if it’s not written down you might not.

So anyway, yeah, those are the big things that I like to talk about when we’re talking about post-employment obligations. Look for those, see if they’re enforceable, tell people the risks about if – you know, the changes of them being enforceable and also the risks regardless, if an employer tries to enforce them the pain in the butt that that can be and, you know, the chances of it actually being enforceable.

And something that you also want to think about with those, not as much going forward because of this new – you know, this law limiting the enforceability of non-competes. But if you’re on a really restrictive termination clause limiting you to those minimums under the ESA, and then on a two-year non-competition clause where you can’t work at another job –

Jill Lewis: Right, yes.

Dana DuPerron: – in your industry or that at all competes for a lengthy period after, you know, there might be wiggle room on that too in the discussion.

Jill Lewis: Absolutely. Yes, that’s a great way to even – yeah, to either increase your termination rights or maybe just to have the non-compete or non-solicit totally waived, right. It’s like, “Well fine, if I can’t work for two years then I’m going to go after two years of severance” or something along those lines. And the other reason why employers really – like don’t cut and paste something you get off the internet, these restrictive covenants because we’ve also seen non-solicits that are like, you know, non-competes in disguise.

Dana DuPerron: Yeah.

Jill Lewis: Right? And so –

Dana DuPerron: But then they make it non-enforceable.

Jill Lewis: It waives the entire thing.

Dana DuPerron: Yeah, you lose that coverage.

Jill Lewis: Exactly.

Dana DuPerron: Yeah.

Jill Lewis: And it’s important, it’s a time-saver, it’s going to save you a lot of money too to just have an employment lawyer look at your contracts from the beginning –

Dana DuPerron: Right.

Jill Lewis: – and to have them constantly be updated, right, because we see how fast the law is changing.

Dana DuPerron: The law is changing all the time.

Jill Lewis: Yeah. So I mean that’s it on our post-employment obligations.

Dana DuPerron: Wow, were you All Worked Up or what?

Jill Lewis: I was so worked up about that. Man oh man, those non-competes get me going. So that’s episode two of our contract series.

Dana DuPerron: Yeah, yeah.

Jill Lewis: Next week we’re going to talk about –

Dana DuPerron: The final installation and the rest.

Jill Lewis: Other issues [laughs].

Dana DuPerron: Other issues. Those other little finicky clauses that we’re looking for in contracts and issues to keep in mind.

Jill Lewis: Yeah. All right, well thanks for joining us on All Worked Up. We’ll see you guys later.