Non-Solicitation Agreements: The Basics
Under Ontario employment law, employers are entitled to protect their business interests from departing employees. In general, these issues arise in employment-related disputes, especially termination of employment, wrongful dismissal and a constructive dismissal. However, there is a delicate balance that the courts will try to maintain in terms of an employee’s interest and an employer’s interest:
For employees, the courts want to ensure an employer does not unreasonably impede their ability to work in their chosen field or to compete with a former employer. For employers, the courts want businesses to protect their rights or competitive position and for employers and employees to contract as they wish. As the Supreme Court of Canada stated in one case:
“A covenant in restraint of trade is enforceable only if it is reasonable between the parties and with reference to the public interest. As in many of the cases which come before the courts, competing demands must be weighed. There is an important public interest in discouraging restraints on trade, and maintaining free and open competition unencumbered by the fetters of restrictive covenants. On the other hand, the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power.”
In simple terms, a non-solicitation agreement prohibit an employee from attempting to “steal” (or solicit) a former employer’s clients, customers, employees, and so on, for a certain period of time. Most importantly, unlike a non-competition agreement, it does not prohibit the employee from competing against a former employer, such as by joining a competitor or starting a competing business.
Test for Enforceability of a Non-Solicitation Agreement
In order for a non-solicitation agreement to be found legally valid and enforceable, it must be deemed “reasonable”:
- Is it necessary to protect an employer have a “proprietary interest”, such as clients or customers of the business, trade secrets, goodwill, or confidential information like customer or client lists?
- Is it narrow in terms of duration (how long it lasts)?
- Is it narrow in terms of geographic scope (where it applies)?
- Is it narrow in terms of the activities prohibited?
- Is it unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer?
Generally speaking, the courts will not enforce a non-competition clause if a non-solicitation clause would adequately protect an employer’s interests.
How to Prove Breach of Non-Solicitation Agreement
Since a non-solicitation agreement is usually enforced by a company, it is an employer’s onus to prove that it is “reasonable” and therefore legally enforceable.
Case in Point: Example of a Non-Solicitation Agreement
In a recent case in Alberta, a court found in favour of an employer seeking to enforce a non-solicitation agreement against a departing employee after he left his employment and then joined another company in order to perform services to one of his former employer’s clients.
The Facts
The employer, Catch Engineering, had a contract with CNRL to provide engineers on various projects to CNRL in 2019. The employee, Mr. Mai, was hired by Catch specifically to perform contract services to CNRL as a Smart Plant Electrical (“SPEL”) Administrator.
As part of the employee’s employment offer, he signed a Confidentiality Agreement that contained a non-solicitation agreement prohibiting him from soliciting any customers of Catch 12 months. The clause stated:
“During the term of this Agreement and for a period of twelve (12) months from the effective date of termination of employment, either by the Employee or the Company, the Employee shall not:
(a) intentionally act in any manner that is detrimental to the relations between the Company and its clients, suppliers, contractors, employees or others; and
(b) Directly or indirectly contact or solicit any customers of the Company or any of its subsidiaries or affiliates with whom he or she has dealt during the twelve (12) months prior to his or her termination, for the purpose of inviting, encouraging or requesting any the Company customer to transfer from the Company to the Employee or the Employee’s new employer, or to otherwise discontinue its patronage and business relationship with the Company,
and for a period of twenty-four (24) months from the effective date of termination of employment, either by Employee or the Company, the Employee shall not:
(c) solicit, induce, recruit or encourage any of the Company’s employee’s or contractors that existed before or after entering into this Agreement.“
The employee worked for Catch for approximately 11 months as an employee from February 2019 to January 3, 2020. On December 17, 2019, he submitted his resignation by email, advising that his last day of employment would be January 3, 2020. Later that same day (merely three minutes after submitting his resignation), and while still employed by Catch, he emailed his supervisor at CNRL, advising he was leaving Catch and inquiring about whether he could work for it as a contractor instead.
On December 18, 2019, Catch met with the employee and asked him to reconsider his resignation as it could damage the company’s relationship with CNRL. At the same time, Catch reminded the employee of his non-solicitation agreement. However, the denied that he was considering working with CNRL after leaving Catch, which was clearly false as was already hired by CNRL through an agency.
As a result, Catch sued the employee, alleging that:
- he breached his non-solicitation agreement
- he breached the confidentiality clause in his employment offer letter
- he breached his duty of good faith
In defence, the employee argued that the non-solicitation agreement was not legally enforceable, and denied that he had breached any other duties owed to Catch.
The Outcome
In court, the employer was successful, as the court found that:
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the non-solicitation agreement was reasonable and enforceable, since it was narrowly focused to protect only Catch’s legitimate business interests without interfering with the employee’s ability to work within his chosen field and utilize his knowledge, skills, and experience in the job market. In fact, even though it did not contain a geographic restriction, it only prohibited him from soliciting one single client of the employee to whom he had been seconded. Also, it clearly designed to prohibit him contacting a client of Catch for the purpose of inviting, encouraging, or requesting any customer to transfer from Catch to the employee or the employee’s new employer, or to otherwise discontinue its patronage and business relationship with Catch. In other words, prohibiting him from asking the clients with he worked to leave Catch, and either hire them directly or through a company other than Catch, which was reasonable.
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the employee breached the non-solicitation agreement, including by reaching out to other agencies to transfer their business from Catch to another employer; contacting the customer and asking if he could and work for them directly; and clearly invited a client to discontinue its engagement with Catch and contract his ongoing services through his employer.
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the employee breached his duty of good faith by lying to Catch about his plans to continue working for Catch’s client;
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the employee breached his confidentiality agreement for an improper purpose by using information about a particular project involving Catch’s customer, including details about technical data, operations and processes, to further his goal of soliciting the customer away from Catch; and
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Catch was awarded damages for lost profits amounting to over $150,000 as a result of the employee’s breach of the non-solicitation agreement.
Call a Employment Lawyer in Toronto Today
If you were terminated from your employment with or without severance package, call today to discuss your options. As an employment law firm in Toronto, Bune Law has reviewed many severance packages and are skilled at negotiating improvements. 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.