Globalization, international mobility and remote working: Could the framework for analyzing territorial limitations of employment-related non-competition clauses become obsolete?

In Quebec, a non-competition obligation imposed on an employee must present limits as to time, place and type of prohibited work, in line with the legitimate interests of the employer. To date, Quebec’s courts have been applying these limitations quite strictly. The recent rise of globalization, technology and international mobility increasingly justifies, in certain circumstances, the legitimacy of non-competition clauses that cover in scope a territory broader than what has historically been considered reasonable in Quebec. This seems even more relevant now that remote working has become part of everyday life. And if the employer’s legitimate interests are to be protected, it will become increasingly necessary to consider in the analysis the employee’s location. 

The courts’ decisions 

To define the legitimate territorial scope of an employment-related non-competition clause, Quebec courts have often looked at the nature of the services offered by the employer and analyzed the territory where the employer operated. In analyzing such territory, a few Quebec court decisions recognized the legitimacy of very broad territorial limitations.

For example, in 2006, in Ubisoft Divertissement inc. c. Tremblay, the Superior Court did not deem invalid a non-competition clause that covered a very broad territory. In this case, Ubisoft, a high-tech video-game company, requested that an interim interlocutory injunction be issued against its former chief executive officer to enforce a non-competition clause. This clause covered the territory of Canada, the United States and Mexico. In the court’s view, the employer satisfied its burden of proving a colour of right since the non-competition clause in this case was not rendered illegal by this vast territory that seems to protect the legitimate interests of the employer.

In 2015, in Cologix Canada inc. c. Brulotte, the Superior Court had the opportunity to review the validity of a non-competition clause covering North America and Europe. Cologix offers colocation (data hosting) and interconnection services to a client base located in North America, South America and Asia. The court stated that given the specific and highly competitive market in which Cologix operates, the clauses in this case are not clearly unreasonable. The Superior Court relied on the same reasoning in PCM in 2017 by holding that the operations of a company could justify a non-competition clause covering 11 US states.

We can therefore see that certain precedents in Quebec justify imposing a non-competition obligation over a broad territory in light of the employer’s operations. However, what happens when an employer’s operations are conducted globally and it must protect its legitimate interests against employees working remotely, sometimes internationally, in regions where the employer does not necessarily have clients or operations?

A look at other legislation

The French and US courts have adopted more permissive approaches to non-competition clauses. 

In France, a non-competition clause covering a very broad territory is not illegal provided that employees are able to perform an activity consistent with their training, knowledge and professional experience. 

In certain US states, such as Rhode Island, a non-competition clause that does not stipulate a geographic limitation is not rendered automatically invalid as long as the employer can demonstrate that its legitimate interests need to be protected. 

This trend does not seem to be applicable in Quebec in light of article 2089 of the Civil Code of Quebec, which minimally requires that a territorial limitation to a non-competition clause exists. In fact, a non-competition clause that includes no territorial limitation will be illegal in Quebec, even if the employer operates in a high-tech industry in which physical borders are practically non-existent. Similarly, a territorial limitation that would cover the entire world would invalidate the clause.

Takeaways

Recently, a more permissive approach to employment-related non-competition clauses seems to be taking shape in Quebec. In fact, the courts sometimes consider that the growing specialization of certain areas of activities can justify broader non-competition clauses, particularly regarding the scope of the territory covered by the clause. 

In this era of remote working, it will, however. be interesting to see if the courts will tend to consider not only the employer’s operating territory, but also the employee’s place of work in order to protect the legitimate interests of the employer – it is more possible than ever for virtually any employee to work from anywhere and for anyone. As such, the approach of the French courts seems to be one of the solutions to this new reality of remote working. However, for those tasked with drafting non-competition clauses, we recommend an approach involving prudence and case-by-case analysis, with moderation as a cardinal rule.

The author wishes to thank law student Guillaume Roux-Spitz for his help in preparing this legal update.