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Supreme Court of Canada Voids Non-Compete Clause

The Supreme Court of Canada ruled in an employment dispute that a non-competition covenant was not enforceable, indirectly giving new guidance for franchisors about non-compete covenants with franchisees (Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 (Jan. 23, 2009), available online at: http://csc.lexum.umontreal.ca/en/2009/2009scc6/2009scc6.html). The primary lesson for U.S. based franchisors is that the “blue-pencil” rule may only be resorted to in rare cases where the part being removed is trivial, and not when it is a substantive part of the restrictive covenant.

An insurance broker by the name of Shafron had sold his business and became an employee of the purchaser. The business was sold again, but Shafron received none of the proceeds. Then he left his job in Vancouver and went to work for a competitor in Richmond, just across the north arm of the Fraser River from the City of Vancouver.

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