In a recent case, the Supreme Court reminds us that restrictive covenants must be drafted in certain and unambiguous terms in order to be enforceable.
An insurance agent sold his agency business, but continued to be employed in the business. He entered into a restrictive covenant wherein he agreed not to compete with the business for a period of 3 years within the "metropolitan City of Vancouver" after leaving his employment. He left his employment and began to work as an insurance agent in Richmond, B.C., a suburb of Vancouver.
The Supreme Court held that the term "metropolitan City of Vancouver" rendered the restrictive covenant too vague and ambiguous to be upheld. The term may be subject to a wide scope of interpretation that may or may not include Richmond. Since the language of the restrictive covenant was neither clear nor certain, there was nothing to suggest that parties had come to a mutual agreement as to geographic scope. As such, the restrictive covenant was unreasonable and unenforceable.
The Court went on to consider whether it could save the restrictive covenant by re-writing it or by deleting the word "metropolitan". As the parties' intention was unclear and the possibility existed that the word "metropolitan" was not merely a trivial part of the agreement, the Court refused to sever or rectify the covenant.
A single ambiguous term may render a restrictive covenant unenforceable and leave an employer open to legal competition by a former employee. Courts will not try to resolve ambiguities or re-draft covenants to compensate for poor drafting by employers. Employers must be diligent in drafting restrictive covenants in clear and precise terms to ensure that they are enforceable.
