The LEGAL RISKS OF QUITTING YOUR JOB in Alberta to START YOUR BUSINESS IN ALBERTA
Deciding to quit your job and launching your own business can be an exciting and fulfilling endeavour. However, before taking the leap, it’s critical to assess the legal challenges involved in resigning from your job and starting your own business. From non-solicitation to non-compete agreements, your employment contract with your employer can present various restrictions in starting a business in a similar industry. It is important to understand the scope of these restrictions in order to avoid potential lawsuits from your previous employer.
NON-COMPETE CLAUSE IN ALBERTA
A non-compete clause will generally restrict an employee from leaving the employer and starting a business, or working for another business, which is in competition with the employer. As an employee, you owe a duty of loyalty to your present employer which requires you to act in the best interests of your employer. If you launch your own business while you are still employed by your employer, particularly if the new business is in the same industry, an employer may bring a claim against you for misusing resources and proprietary information of the company for your own personal benefits.
Despite the risks of any such claim, it is worth noting that the courts do not generally consider non-compete clauses favourably. In Alberta, courts will often refuse to enforce a non-compete clause which is not reasonable. In order to be reasonable, it is necessary for the non-compete clause to be specific and not overly broad. Generally, the courts will consider the geographic or territorial scope of the restriction, duration of the restriction, and whether the employer is legitimately trying to protect its business interests (i.e. confidential information, trade secrets, or customer relationships).
While an employer may struggle to enforce a non-compete agreement in court, they may nevertheless commence litigation against you to discourage other employees from following suit. Therefore, the need for mitigating such risks remains strong. It is critical to carefully review the non-compete clause to ensure that you are not in breach of any specific restrictions.
For example, if the employment agreement expressly restricts you from starting a business in a very specific sector within 12 months of quitting your job, a court may consider the restriction reasonable. For violation of such a clause, the employer may successfully file a suit for damages, injunctive relief, and other legal remedies.
If you are uncertain about whether a particular business activity falls within any specific restriction under the agreement, it is advisable to seek legal advice before engaging in that particular activity.
NON-SOLICITATION CLAUSE IN ALBERTA
Solicitation occurs when a former employee attempts to solicit customers or clients, or employees or business partners, away from the previous employer. Solicitation can occur where an employee quits his job and starts contacting customers of the previous employer with the intention of transitioning those customers from the previous employer’s business to the employee’s new business.
In Alberta, in order to bring a claim of solicitation, the law requires the employer to prove that (i) the employee was a key employee, (ii) the employee was a fiduciary, and (iii) the employer was vulnerable to the discretionary position of the employee. In other words, the employee must have held a senior or high-level position, ideally with powers to negotiate contracts on behalf of the company or be in direct communication with the customers of the company.
Similar to non-compete agreements, courts are generally reluctant to enforce non-solicitation agreements unless they are reasonable, specific, and not overly broad. Alberta courts have also drawn limitations on the scope of solicitation.
For example, an employee is not permitted to contact clients to invite them to transfer to his new business. However, it is permissible for an employee to accept business from former clients, so long as that business is not arranged by direct solicitation. In other words, if the customer voluntarily chooses to sever ties with the employer and chooses to do business with the employee’s new business, it may not be considered solicitation.
To mitigate the risks of solicitation claims, it is advisable to inform the customer that there is a non-solicitation agreement between you and your past employer. However, the customer has the right to choose your business over your past employer’s business. If they decide to choose you, we recommend keeping written communications which may be beneficial if your past employer decides to take legal action in the future.
If you have questions about the enforceability of non-solicitation agreements, or require assistance with complying with such agreements, speak with a legal advisor to minimize the legal risks.
INTELLECTUAL PROPERTY AND CONFIDENTIALITY IN ALBERTA
In the course of your employment, you may have had access to information which your employer may consider to be a trade secret, proprietary information, or confidential information in general. Your employment contract may also have restrictions on any usage of such information which it considers to be its intellectual property or confidential information. Alternatively, you may have also signed a separate non-disclosure agreement (NDA) with your employer. If you start a business using any such confidential information, there is a risk that the employer may bring allegations of misappropriation of its intellectual property or breach of confidentiality. This could result in a claim for damages, injunctions against your business, or other actions.
To be clear, this does not restrict you charging money based on the experience and expertise that you have gathered from your work with the employer. A product or service that you create based on the expertise that you have developed from your experience cannot be considered as a trade secret or the product of your past employer. However, if there is any deliberate usage of any confidential information, intellectual property, or business strategy, there may be risks of claims by your employer against you for breach of intellectual property rights and/or confidentiality.Bottom of Form
The restrictions imposed by the employment contract may not always be straightforward. This may not always be a bad thing. If there is any ambiguity in the language of the contract, the benefit of the doubt would be given to the employee, rather than the employer. Nevertheless, where the employer has a tendency to aggressively protect its business from competition, solicitation, and intellectual property use, it is always advisable for employees to consult a lawyer to seek advice on the risks and how to navigate them.
Author: Imtiaz Hafiz | Legal Strategist, Litigation and Compliance