A contract to be limited in some regards as to future conduct.
In use at law re real property and re employment law, both as set out below.
Originally, and still today, the term refers to a limitation imposed on real property such as a prohibition of cats and dogs or of a clothesline or in rural areas, any number of restrictions dealing with agriculture.
In real property law, a restrictive covenant runs with the land and would be registered against title such that a new owner would have to take the land with the restrictive covenants, subject to a Court striking the restrictive covenant upon application of the landowner.
Given a "restrictive" nature of these documents, jurisdictions typically draft and implement statutes setting out the terms and conditions of restrictive covenant to reduce the restraint of trade element of them. For example, British Columbia has a Property Law Act which, as of 2007, had the following provision:
"If the benefit of a restrictive covenant about building on or the use of land is annexed or purports to be annexed by an instrument to other land, the benefit, unless expressly agreed otherwise, is deemed to be annexed to the whole and to each and every part of that other land capable of benefiting from the restrictive covenant."
Restrictive covenants are also very important concepts in employment law, covering agreements prepared by employers who seek to protect themselves from an employee leaving and joining the competition, or becoming the competition!
A restrictive covenant can provide for a number of limitations.
It may prohibit the employee from working for a competitor business for a period of time after they leave the employer's business.
It may also restrict the departing employee from joining a competing business within a defined territorial limits.
Other restrictive covenants deal with an employer's intellectual property, mostly just to supplement the protections already afforded to employers in the protection of their intellectual property by common law, statute and even the criminal law.
In employment law, a restrictive covenants must be contractual and will always be exceptional.
For some reason, likely to do with the historic abuse by employers of employee rights, the Courts do not seem to like restrictive covenants. It is always an uphill battle for an employer's lawyer to defend a restrictive covenant before the Court.
In point of fact, restrictive covenants are usually presented to an employee at the time of hiring or, worse, during the period of employment with the implied or express understanding that acceptance of the restrictive covenant is a condition of future employment or advancement.
In one Canadian case, Lyons v Multari, Dr. Lyons had a successful dental practice.
He needed an associate.
So he hired a person graduating from dentistry, Dr. Multari.
They discussed terms of employment over dinner and at one point, Dr. Lyons scribbled on a napkin these words: "covenant 3yrs. – 5 miles". The new associate initialed the napkin.
Before long, Dr. Multari quit Lyon's dental practice opened up his own dental office less then 4 miles away. Dr. Lyons asked the Court to shut him down based on the restrictive covenants.
The Ontario Court of Appeal restated the general position of all Canadian courts on restrictive covenants.
They gave no codifiable guidelines to employers and employees (which remains the state of the law) and deferred instead to a "reasonableness" assessment on a case-by-case basis, adding that restrictive covenants that purport to limit competition will only exceptionally be upheld by the courts, and not so where a nonsolicitation clause would have done the trick (a clause prohibiting the departing employee from using the employer's client list to build his or her own business).
"This appeal calls for striking a proper balance, in a professional employment context, between competing values – on the one side, the sanctity of a clear contract between equals, set against, on the other side, the law’s long-standing aversion to contracts that attempt to restrict competition generally.”
“Dr. Lyon’s non-competition clause is unenforceable. His legitimate interest in protecting his own referring dentists and patients could have been protected by a non-solicitation clause. Non-solicitation clauses are permissible. In exceptional cases only, non-competition clauses will be upheld."
References and further reading:
►
Lyons v Multari 2000 CANLII 16851 (OCA), published at
canlii.org/en/on/onca/doc/2000/2000canlii16851/2000canlii16851.html).
► Herff Jones v Canada v Todd 1996 181 AR 236 (ABCA - a case where a restrictive covenant was upheld, given the circumstances).