Non-Solicitation and Non-Disclosure Agreements in Wrongful Dismissal Claims

Workplace Secrets and Stealing Clients? Understanding Non-Solicitation and Confidentiality Clauses in Severance Packages

So, your employer informed you that it decided to terminate your employment and, to resolve a wrongful dismissal claim, offered you a hefty severance package. While the cash infusion might seem like a sweet consolation prize, it often comes nestled with some confusing legal jargon often found in the termination letter and full and final legal release. Two of the major issues will likely involve (i) non-solicitation agreement and (ii) confidentiality agreements. While at first these may sound like something out of a movie or novel, they do actually exist – and they can impact your options moving forward toward your new job. In this employment lawyer blog post, we help you decipher them with real-life examples you can actually understand.

Confidentiality (Non-Disclosure) Agreements

In the employment law context, a confidentiality (also called a non-disclosure) agreement is a binding legal contract by which the employee agrees not to disclose proprietary company information that they have shared with each other as a necessary part of doing business together. In other words, an agreement to keep any confidential information secret and not share or disclose it to anyone. Some examples of confidential information include:

(a) Trade Secrets

• Formulas or processes: This could include things like the recipe for a popular product, the algorithm behind a software program, or the manufacturing process for a specific device.
• Customer lists and pricing information: Knowing who your employer’s customers are and what they pay for products or services can be valuable to competitors.
• Business plans and strategies: This includes future product development plans, marketing strategies, and financial projections.

In the context of employment law, confidential information can encompass a wide range of things, depending on the specific industry, role, and company policies. Here are some general examples categorized for better understanding:

(c) Intellectual property:

• Patents, copyrights, and trademarks: These are all forms of intellectual property that are protected by law.Disclosing them to unauthorized individuals could harm the company’s competitive advantage.
• Inventions and unpublished works: Even if something hasn’t been formally patented or copyrighted, it can still be considered confidential if it gives the company a competitive edge.

However, confidential information will vary depending on the employee and employer’s situation. For example, here are some specific scenarios of confidential information based on the type of employment:

• Salesperson: Customer lists, pricing information, competitor analysis, and upcoming sales campaigns.
• Marketing manager: Marketing plans, brand strategies, advertising budgets, and customer demographics.
• Software developer: Source code, bug reports, security vulnerabilities, and future product features.
• Human resources manager: Employee salaries, benefits information, disciplinary records, and performance reviews.

The bottom line with confidentiality agreements is this: its purpose is to restrict you from sharing confidential company information, like trade secrets, customer lists, or even those juicy office gossip emails, with anyone outside the company, while you are employed and even after your employment ends (whether you resign or you are wrongfully terminated).

In the workplace context, protecting confidential information is important for both the employee and the employer. Employees who violate confidentiality agreements may face disciplinary action, including termination of employment. Additionally, employers may take legal action against employees who misuse confidential information, such as a court injunction.

Non-Solicitation Agreements

A non-solicitation agreement is a contractual that restrict a former employee from actively seeking to entice away their former employer’s clients or employees for a specified period after their employment ends. They are often included in employment contracts, severance packages, or as stand-alone agreements signed at the time an employee joins a new company.

In a wrongful dismissal claim, these agreements can become a point of controversy when an employee alleges they were fired without just cause and then restricted from pursuing their livelihood due to overly broad or unreasonable non-solicitation clauses.

To determine if a non-solicitation agreement is legally valid and enforceable, the courts apply the following test:

• Public Interest: Courts also balance the employer’s legitimate business interests with the public interest in promoting fair competition and employee mobility.
• Scope and Enforceability: Courts often examine the scope of the non-solicitation agreement to determine its reasonableness. Factors considered include:
  • Duration of the restriction (e.g., 6 months or 2 years?)
  • Geographic scope (e.g., specifically a local area where the company operates or an entire country?)
  • Specificity of prohibited activities (e.g., only direct solicitation or virtually any contact?)
  • Nature of the business and employee’s role when working with the company

Examples of Non-solicitation Agreements in Wrongful Dismissal Claims

1. Salesperson: A salesperson with a non-solicitation agreement is terminated without cause. The employer sues them for allegedly violating the non-solicitation agreement by contacting former clients after joining their new company. To resolve the dispute, the court may examine the scope of the agreement and the salesperson’s actions to determine if the employee violated a legally enforceable restrictive covenant and, if so, what remedies are available to the employer.

2. Executive: A senior executive with a non-solicitation agreement is wrongfully terminated. After joining a competitor and hire several former colleagues, the former employer sues, alleging a breach of the non-solicitation agreement. In resolving the dispute, the court may assess the executive’s role in recruiting and whether it constituted active solicitation or simply informing former colleagues of new opportunities, and if so, what remedies should be available to the employer.

Take-Home Lessons

• Non-solicitation agreements can be legitimate tools an employer protect legitimate business interests, but they must be reasonable in scope, duration and activities prohibited.
• Courts carefully scrutinize these agreements in wrongful dismissal cases to ensure they don’t unfairly restrict employee mobility or competition.
• As an employee or employer, it is crucial to consult an experienced employment lawyer if you face a wrongful dismissal claim involving a non-solicitation agreement to understand your rights and obligations.

Call Employment Lawyer Toronto Today

If you are an employee who believes you were wrongfully dismissed from your employment with or without a fair severance package, call today to discuss your options. As an employment law firm in Toronto, Bune Law has reviewed and negotiated improvements to many severance packages. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.