In business, the answer to this question could not be more straightforward. We try to limit competition because the bottom line is profit, and the more people or businesses that are in direct competition with your business, the harder it can be to maximize that bottom line. The ideal situation of being the only local business that can provide the goods or services that you provide is exceptionally rare, and in present times, almost impossible to accomplish. Two common ways to limit competition is by restricting the actions of current/former employees, and restricting the actions of former owners who may have sold their business to you.

The limits are often governed by the careful drafting of a non-competition clause in the agreement or document that has set out the terms of your arrangements with the person in question. A non-competition clause is generally a promise by an individual or company to refrain from engaging in actions or practices that are in direct or indirect competition with your business, profession or area of expertise.

Most often, such a limitation would be restricted to both a particular geographic area and to a finite period of time. These two factors will often "make or break" the enforceability of the restrictive covenant. Special care should be taken to ensure that the time and geographic area are not overly broad relative to the circumstances, while at the same time ensuring that the covenant adequately guards against competitive behaviour.

While most would lean towards a longer time period and larger area, the most prudent move is to select values for time and distance that are no more than what is absolutely necessary to protect your interests. It is also necessary to specify the precise areas of trade, the particular nature of the business, types of establishments or a profession that the covenant applies to, otherwise, in court, such a clause would likely be struck out as unenforceable for being overly broad.

Businesspeople are often under the false impression that non-competition agreements or clauses are something they should benefit from as of right. This however, is not the case. Unless a non-competition arrangement can be justified as reasonable and fair for all interested parties, a court would be more likely to strike such a provision down.

Freedom of trade is something not only important to the society at large, but it is also held in very high regard in the court system. It is for this reason, among numerous others relating to the individual parties, that courts will not honour non-competition arrangements if they are unreasonably restrictive. Reasonableness or a lack thereof will be assessed contextually, taking into account the specifics of all parties involved, the relevant business or work and any surrounding factors.

Every individual should be able to earn a living – no matter the circumstances. Overly restrictive non-competition agreements that render individuals unable to work in their trade or area of expertise are often found to be unenforceable. For an employer to limit a former employee's competitive behaviour, it would be imperative for the employer to demonstrate that the purpose for the non-competition clause was not merely to stop the employee from carrying on similar work, but that there was a legitimate harmful effect to their business that would be inevitably caused by the former employee's activities. Certain interests like client lists, confidential information and trade secrets are all considered to be aspects of a business that warrant protection through non-competition agreements. Non-solicitation clauses are often found alongside non-competition clauses so as to limit an individual's ability to solicit the clients of the business. While closely related, the two clauses have very different functions, and they are not always both necessary in every case.

There is more latitude regarding restrictive covenants when dealing with the vendor of a business – likely because vendors are in a much less vulnerable position than employees and because the sale of the business will often include goodwill which tends to be more difficult to protect. Vendors are generally in a position that can be much more damaging to a purchaser if the vendor were to engage in competitive actions. For these reasons, non-competition agreements in such circumstances are more often upheld (again, provided that they are reasonable and not overly restrictive). As an aside, it must be noted that if a court were to find that a non-solicitation covenant would be adequate to protect a business's interests and that the non-competition aspect was unnecessary; such a clause would likely be severed from the agreement.

From a practical standpoint, the following scenario addresses the issue of enforcement: in this scenario, Bob (the vendor) sold his plumbing business to Damian (the purchaser). Further to their agreement, Bob signed a non-competition agreement restricting him from engaging in the sale of plumbing materials. Damian proceeds to operate the business in the usual course and after a short period of time, Damian is advised by three little birds that Bob has continued to sell pipes after the closing of their transaction. Bob was in the predicament of having found a significant amount of inventory he had stored in his basement at home (which he honestly forgot about) that was not listed as forming part of the agreement with Damian. The suppliers refused to take the piping back and Bob did not want to tell Damian given that the agreement was supposed to be for all of the assets of the business. Upon confronting Bob, Damian received an outright denial of any competitive behaviour. Damian's sources were unwilling to swear affidavits regarding Bob's actions and he had no other proof other than word of mouth. Moving forward, Damian could attempt to obtain an injunction against Bob or he could sue Bob for his breach of the agreement in hopes of being compensated. Unfortunately, as Damian had no concrete evidence of Bob's competitive conduct, it would be unlikely that he would be able to obtain an injunction or be able to prove that he had suffered any damages. Unfortunately, Damian seems to be in a situation with no real recourse.

This is not to say that care should not be taken in drafting non-competition clauses but it is merely a warning. It is always most prudent to include as much protection in an agreement as possible. However, in reality, if you are unable to demonstrate losses or damages, even the most reasonable and well-crafted non-competition agreement could provide you with little or no protection at all. Always err on the side of caution and protection, but be cognizant of the difficulties of enforcing such arrangements. Nothing in business is a sure bet, you will always need to strive for excellence. Try to harness the competitive nature of the business world to your advantage.

Jordan S. Halpern is a lawyer with BrazeauSeller LLP. He practises in the areas of corporate/commercial transactions as well as commercial and residential real estate. Jordan can be reached at 613-237-4000 ext 274, or at jhalpern@brazeauseller.com. For more information about Jordan, please visit www.brazeauseller.com.