Restrictive covenant

A buyer paying for goodwill is, in practical terms, paying to make sure the seller does not simply open a competing business down the street and pull the customer relationships back with them. Restrictive covenants are the mechanism that makes that goodwill actually worth something, which is why they get negotiated hard on both sides of the table.

The mistake people actually make

Drafting a restrictive covenant as broadly as possible "to be safe." Canadian courts test these clauses for reasonableness — how long the restriction lasts, how wide a geographic area it covers, and how broadly it defines the restricted activity — and will typically strike down an unreasonable covenant entirely rather than narrow it. An overreaching clause can end up protecting nothing at all, when a more modest one would have held up.

The Ontario and Quebec difference

Ontario’s Employment Standards Act generally prohibits non-competition agreements for employees, with an exception tied to the sale of a business, so who is actually bound — an owner-seller versus a rank-and-file employee — changes the analysis significantly. Quebec’s Civil Code separately requires an employee non-competition clause to be in writing and expressed in specific terms as to time, place and type of activity, a codified test rather than the common law’s judge-made reasonableness standard used elsewhere.