Non-Compete Clauses: Why Overbroad Drafting Leads to Invalidity Under Québec and Canadian Law

Authors: Roy Cheung and Barbara Farina

The blue pencilling rule is a judge-made doctrine historically developed in the United States that allows courts to modify overly broad contractual clauses in order to render them enforceable rather than invalidating them in their entirety. This approach remains in effect in 39 of the 50 U.S. states.

By contrast, Québec and Canadian law depart markedly from this approach. Courts generally refuse to rewrite unreasonable restrictive covenants. As a result, an invalid non-compete clause is, save for limited exceptions, struck down in its entirety.

This divergence is not merely theoretical. It has concrete consequences for employers, business sellers, and shareholders, as the enforceability of a non-compete clause depends closely on its contractual context and the relative bargaining power of the parties. Recent case law developments illustrate that the validity of such clauses is assessed based on several factors, including the nature of the legal relationship and the legitimate interests at stake.

Employment Context (Québec)

In Québec employment law, blue pencilling is non-existent. A non-compete clause that is found to be excessive is simply declared null and void.

The burden rests on the employer to demonstrate the validity of a non-compete clause in accordance with section 2089 of the Civil Code of Québec. Such clauses must be reasonable as to their duration, territorial scope, and the activities restricted, and must seek to protect a legitimate interest of the employer.

In Jutras v. La Presse (2018) inc., 2023 QCCS 2506, the Superior Court invalidated a non-compete clause that was found to be overly vague due to its failure to specify the prohibited activities. The Court reiterated that it cannot correct or reform such a clause. Imprecision results in its complete nullity, with no possibility of severing or reformulating certain elements.

Sale of Business Context (Canada)

In the context of a business sale, Canadian courts recognize a certain margin of interpretation in commercial settings, but without engaging in true blue pencilling. A poorly drafted or manifestly excessive clause therefore remains at high risk of invalidity.

Courts nonetheless adopt a more flexible approach, as the parties are presumed to have relatively equal bargaining power. The burden of demonstrating that a clause is unreasonable thus lies with the party challenging it, unlike in the employment context.

In Ruel v. Rebonne, 2023 ABCA 156, the Alberta Court of Appeal upheld a five-year non-compete clause in a business sale agreement, finding the duration reasonable in light of the commercial context and the parties’ equal bargaining power.

Similarly, in Dr. C. Sims Dentistry Professional Corporation v. Cooke, 2024 ONCA 388, the Ontario Court of Appeal upheld a clause prohibiting a seller from practising within a 15 km radius for five years, holding that it protected a legitimate commercial interest and had been negotiated on an even footing.

Shareholders’ Agreements (Québec)

Non-compete clauses contained in shareholders’ agreements are interpreted based on the status and bargaining power of the parties.

Clauses applicable to an employee-shareholder are reviewed strictly and treated as employment-related non-compete clauses. In contrast, those applicable to a shareholder-director or founder benefit from greater latitude due to a more balanced power dynamic.

Nevertheless, even between shareholders, a non-compete clause must be clear, balanced, and performed in good faith. Failing this, it is unenforceable in its entirety, with no possibility of judicial correction (blue pencilling).

In 9395-3271 Québec inc. v. Fleury, 2023 QCCS 2603, the employer sought an interlocutory injunction to enforce statutory and contractual obligations owed by two former employees, one of whom was also a shareholder, including non-compete and non-solicitation obligations. The Superior Court refused to grant the injunction, finding no serious issue to be tried. In particular, it held that the three-year non-compete clause contained in the shareholders’ agreement was invalid, as its starting point was indeterminate, depending on the date of disposition of the shares, which was neither fixed nor determinable at the time of the dispute.

Conclusion

Although blue pencilling is firmly rooted in American legal tradition, it has not found a meaningful place in Québec or Canadian law. Recent case law confirms that courts refuse to rewrite contracts to remedy deficient drafting. A clause found to be unreasonable is invalidated in its entirety, not corrected.

In practice, a non-compete clause is therefore a high-risk drafting exercise: it is either valid at the time it is entered into, or it is unenforceable. Clarity, proportionality, and precision remain the essential conditions for the validity of restrictive covenants. The drafting of such clauses must be carefully tailored to the contractual context and the parties’ relative bargaining power in order to avoid being found excessive and, as a result, invalid.

In this context, early legal involvement is critical. KRB regularly advises employers, shareholders, and transaction parties on the structuring and drafting of non-compete clauses tailored to their business realities, with a view to safeguarding strategic interests and reducing the risk of invalidity and litigation.