WHAT YOU SHOULD KNOW ABOUT NON-SOLICITATION AND NON-COMPETITION CLAUSES
Employment contracts will often include terms that are in restraint of trade. They are incorporated in order to protect the employer’s interests once their employees leave for job in other companies. This article discusses such clauses in the employment context with their usage and enforceability.
Non-competition and non-solicitation clauses are known as “restrictive covenants.” Restrictive covenants are contractual clauses in an employment agreement that attempt to limit a former employee’s ability to solicit the employer’s clients and/or start their own business that competes with their employer.
The Enforcibility Of Restrictive Covenants
In general, the courts will be reluctant to enforce clauses that will restrict an individuals’ ability to earn a living or pursue a job of their choice. As such, the starting point for restrictive covenants is that they are unenforceable unless the employer can demonstrate why the covenant should be enforced.
For a restrictive covenant to be deemed enforceable, the courts usually require that it be as minimally restrictive as necessary. As such, non-competition clauses are hard to enforce as a non-solicitation clause will often be considered sufficient. Courts will also not fix a restrictive covenant. If it is too broad, unreasonable or otherwise flawed, it will be found unenforceable-the courts will not fix the clause to make it enforceable.
1) Non-Competition Clauses
a) What Are They?
Non-competition clauses prevent a departing employee from competing with their former employer by either starting their own business or working for a competitor business.
Non-competition clauses that are limited in duration and in geographic scope are more likely to be enforced as opposed to a broad clause that lasts for many years. It should be noted that a non-competition clause is less likely to be upheld where a non-solicitation clause can adequately protect the employer’s proprietary interests. In exceptional cases, the courts would uphold a non-competition clause against a departing employee when a simple non-solicitation does not suffice. (Elsley v J.G. Collins Insurance Agencies Ltd., 1978 2 SCR 916)
2) Non-Solicitation Clauses
a) What Are They?
Non-solicitation agreements aim to prevent departing employees from poaching their former customers, clients, suppliers or coworkers. Without a proper non-solicitation clause, it would be much easier for employees to poach former clients, suppliers or fellow employees once their employment with the company has been terminated.
The courts will consider several factors in determining whether a non-solicitation clause is enforceable. These factors include the length of the restriction, the geographic scope, whether the covenant is clear, certain and not vague, and the general reasonableness with respect to the public interest.
If the non-solicitation clause fails to set out the time period for which the clause applies, or tries to set out an unreasonable time period (e.g., a 10-year restriction on solicitation for an employee of 3 years), then it will be found to be unreasonable and therefore unenforceable. Similarly, a clause that purports to cover the entirety of Canada will be found to be too broad geographically and will be unenforceable, when the former employee only worked and interacted with clients located in Toronto or Ontario.
Furthermore, a non-solicitation clause may actually be a “non-competition clause in disguise” if it attempts to limit activities that are not “solicitation.” For example, if the clause attempts to prevent a former employee from doing work for a competitor, or a client of former employer when the client approaches this employee out of their own free will, then the clause is actually attempting to prevent this former employee from competing rather than simply trying to prevent them from soliciting.
Therefore, employers should be aware that a great deal of skill is required in drafting an enforceable restrictive covenant, while employees should carefully review an employment agreement with non-competition and/or non-solicitation clauses and seek legal advice before signing such a document. If you have any questions regarding non-competition and non-solicitation clauses, top Toronto employment lawyer Stacey Ball can help you explore your legal options. Please contact our office at 416-921-7997 extension 227.
Canadian Employment Law
Mr. Ball is author of the authoritative and definitive text Canadian Employment Law - published by Canada Law Book (a division of Thomson Reuters). The text is used and cited by lawyers, law schools and judges across Canada.
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