Non-compete and non-solicitation agreements are clauses that attempt to limit a former employee’s ability to work with a competitor and/or solicit former clients for a specific duration of time.
In most cases, these types of clauses are found within a written employment agreement. However, for fiduciary employees such as senior executives or those with specialized knowledge of the business, non-compete and non-solicitation clauses may be implied if not written.
On October 25, 2021, the Ontario government introduced Bill 27, Working for Workers Act, 2021. The proposed legislation aims to better protect, support, and attract workers to Ontario. The bill passed the first reading in the Legislative Assembly of Ontario on October 25, 2021. If passed, the new legislation will amend the Employment Standard Acts to prohibit employers from using non-compete agreements. However, the new legislation will continue to allow purchaser and seller to enter into an agreement that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that is in competition with the purchaser’s business after the sale.
What is a non-solicitation clause?
A non-solicitation clause typically prohibits an employee from soliciting or poaching the clients, customers, employees and any others with whom the employer has business dealings with for a specific duration of time and within a specific geographic scope.
What is a non-compete clause?
A non-compete clause attempts to prevent an employee from working for a competitor or starting a business that directly competes with their former employer for a certain period of time and within a certain geographical scope. Non-compete clauses are seen as more onerous than non-solicitation clauses since they impede an employee’s ability to work in their chosen field, particularly if it is a specialized one.
Are non-competition and non-solicitation clauses enforceable?
Given the financial burden as well as the power imbalance between an employee and employer, these agreements are notoriously difficult to enforce and are presumptively unenforceable unless the Court can be swayed that they are reasonably drafted in the circumstances.
The onus is on the employer to prove that the clause is reasonable and courts will consider several factors in determining whether non-compete and non-solicitation agreements are reasonable. These factors include the length of time of the restriction, geographic scope, whether the covenant is clear, certain and not vague and its overall reasonableness with respect to the public interest. The employer must also show that a specific loss or hardship will arise if the clause is not enforced. If an employer drafts a non-compete or non-solicitation clause that is clear, unambiguous, reasonable in length of time and in geographical scope, a court may uphold that clause.
How can you tell if a non-compete or non-solicit will be upheld?
Non-compete and non-solicitation clauses can be challenged if their duration is too long, the geographic scope is too broad and the clause is unnecessary to protect the employer’s interests, for example, because it is unfair. Additionally, if the employee signed the clause while under duress or without proper consideration, the entire employment contract could be deemed unenforceable.
In MD Physician Services Inc. v. Wisniewski 2018 ONCA 440, for example, the Court of Appeal found that a non-solicitation agreement was enforceable. The non-solicitation clause, in this case, outlined the employee was not “to solicit or attempt to solicit, the business of any client, or prospective client, of the Employer who was serviced or solicited by the Employee during his/her employment with the Employer”. The Court found the clause to be reasonable as it protected the employer’s proprietary interest without limiting the employee’s right to earn a living.
What happens if you violate a non-competition clause?
If an employee violates an enforceable non-competition or non-solicitation clause, they risk being sued for the damages for the value of any lost business or clients by their former employer. The range of damages can be minimal or significant depending on the loss. There have even been cases where the employer is granted an injunction that prohibits the employee from continuing their business or from working in their specific field; thus timely legal advice is important.
A great deal of skill is required when drafting an enforceable non-compete or non-solicitation clause. In order for a clause to be enforceable, it must be drafted as narrowly as possible in order to protect the employer’s valid proprietary interests. Monkhouse Law is a workplace law firm that can help employees and employers determine whether their non-compete and non-solicitation clauses are enforceable. Contact us today for a free consultation.
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