Termination Letter Template
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you are an employer or employee and need legal advice with respect to employee termination, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can contact me directly if you need a lawyer.
This is the third of a series of article posts I'm writing about employee termination. In this article, I'll touch on restrictive covenants that can be included in an employee termination agreement ' such as non-competes, non-solicitation, and non-disparagement clauses. In the first article, I reviewed what these agreements are and how they can be structured. In the second article, I talked about terms that you could find in these agreements and important things to consider, such as consideration, payment, and release of claims.
Confidentiality
Sometimes, particularly when very important matters are being settled and the media is involved, there may need to be a provision in an Employee Termination Agreement that the parties will keep the agreement (in whole or in part, including its existence) strictly confidential. Alternatively, the parties may want to have a separate Confidentiality and Non-Disclosure Agreement entered into in conjunction with the Settlement and Release Agreement. Since these Agreements are lengthy and may be complicated, it is best to make them separate from the Release and Settlement Agreement. You can purchase a One-Sided Confidentiality and Non-Disclosure Agreement package (which includes the form, video guide, and DL Guides) on Dynamic Lawyers. If that's the case, make sure that any "Entire Agreement" clause in the General Terms (which effectively says that whatever is in this agreement is the only thing part of the agreement) doesn't invalidate the other agreement! Just make an exception in the Confidentiality and Non-Disclosure Agreement for the Employee Termination Agreement and vice-versa! If you're finding this is too complicated, make a post on DynamicLawyers and get a lawyer to review and revise the agreement so that everything dovetails.
Other Restrictive Covenants
Restrictive Covenants are terms and conditions in the Employee Termination Agreement that limit the Employee's ability to do certain things during and after the term of employment. Typical examples include restrictions on the ability to compete or solicit customers or employees. Non-compete clauses generally say that the Employee will not him or herself compete with the Employer in its business for a set period of time and within a specific geographic area after termination. Non-solicitation clauses generally say that the Employee will not solicit customers or employees of the Employer (or its agents, representatives, etc.) for a set period of time and within a certain geographic area after termination.
Non-Compete, Non-Solicitation, Non-Disparagement
Non-compete clauses are designed to protect the Employer by preventing the Employee from competing in the "Business" (recall from above that this is a defined term from the Background Information) after termination. Non-solicitation clauses are another form of restrictive covenant whereby the Employee agrees not to solicit Customers or employees of the Employer. Finally, Non-Disparagement clauses are meant to prevent the Employee from making defamatory statements against the Employer. Make sure to have a lawyer review these clauses for you if you have any doubts as there are strict legal tests that must be met in order for these clauses to be enforceable.
Restrictive Covenant Tips
It's worthwhile to spend some extra time discussing restrictive covenants (to help make sure that they are as valid and enforceable as possible). So, apart from ensuring that you proposed restrictive covenants are clear, complete, and reasonable, and that "Consideration" exists (as discussed above), here are some additional tips to help strengthen the enforceability of your restrictive covenants:
Explain why it's needed
It's not a bad idea to include in a non-compete or non-solicitation agreement the reason for having those types of restrictive provisions. This will form part of what the parties knew at the time, as well as the consideration (i.e. the benefits and detriments that passed between the parties as part of making the fundamental exchange). So the reason for having a non-compete or non-solicitation agreement could include:
- The Employee was provided with confidential information as part of his or her job;
- The Employer invested a lot of time, energy, and resources to developing a trade secret, patent, or technology;
- The Employee had direct access to clients and client lists;
- The Employee was a representative of the business (such that the public equates the identity of the Employee with the identity of the business);
- The Employee gained significant insight into the Employer's business; and
- The Employer's industry is new, specialized, or very competitive.
Pay for it!
Always remember that asking an Employee to give up a right doesn't come for free. Their right to compete and solicit can only be restricted temporarily and in exchange for Consideration (i.e. pay, benefits, etc.). So just make sure to equate this Consideration with the right that they Employee is agreeing to give up!
How long is too long?
Sometime less than 2 years seems to be reasonable and capable of being upheld by Ontario courts ' particularly in the Employment context. 10 years is unlikely to be enforceable. Courts will look at a number of factors to determine whether the temporal limits are reasonable ' such as the Employee's age, position, experience, time with the employer, and termination pay (the more they are paid, the longer the restrictive covenant will tend to be enforceable for). What's reasonable will depend on the specific facts applicable in each situation.
How far is too far?
You want to be pretty precise here in terms of language, but also reasonable. If you as the Employer try to say something like "you can't compete in the same area as where my customers live", it's unlikely to be enforceable (because it's too vague: where the heck do the customers live?). Also, you can't ask for the moon by saying that an Employee can't compete within a very large geographic area (e.g. country). Sometimes, an Employer will be able to claim an entire country or province as off limits, but that will be because the Employer actively operates throughout that area. You need to be fair and reasonable here or else your restrictive covenant won't be enforceable. What's fair and reasonable will depend on the mutual expectation of the parties at the time the Employee Termination Agreement is made.
Take time to review, get legal advice, and negotiate
It's always a good idea for an Employer to provide time to the employee to read and understand the agreement, get legal advice (this will effectively impute the knowledge of the lawyer onto the employee), and even negotiate the terms of the restrictive covenants. Showing these things will help to mitigate potential challenges. It's particularly important for the Employer to demonstrate that the Employee negotiated the clause (and just didn't accept things blindly), as this will prevent the Employee from arguing things like they were under duress, undue influence, etc. which forced them to sign. Independent legal advice is also important for the Employer: courts will not look kindly on those parties who have had such advice and then later claim they didn't understand or agree to the restrictive covenant.
By the way, if you need an Employment Agreement or Employee Termination Agreement, you've come to the right place. We have both! The Employee Termination Agreement can be used by an Employer to terminate an Employee's employment. It is drafted in favour of the Employer: it contains a release of liability, settlement of claims relating to the employment and termination thereof, and includes restrictive covenants (e.g. non compete and non solicitation clauses). If you're looking for an employment agreement, just go here. Both sell for only $47 and they come with video tutorials and 2 free written guides (the form and the written guides are lawyer-prepared).
About the Author:
Toronto Employment Lawyer Michael Carabash is a GTA business lawyer and the founder/President of Dynamic Lawyers. Michael practices business law and litigation at Carabash Law and helps clients understand, draft, negotiate and resolve disputes over business agreements. If you are looking for an Empoyment Agreement, Employment Termination Letter, or other legal form, check out http// www.dynamiclawyers.com