It is not uncommon for employment contracts to contain restrictive covenants such as non-compete or non-solicitation clauses. Non-compete clauses typically prevent an employee from working for an employer’s competitors after a work relationship has ended; whereas a non-solicitation clause prevents an employee from contacting a former employer’s clients in order to do business with them.
Non-competition clauses are usually only enforceable in exceptional circumstances, as they are generally considered to be too restrictive. Non-solicitation clauses are preferable as they can typically provide the protection needed by an employer without infringing on the rights of an employee.
While the difference between a non-solicitation and a non-compete clause may seem simple, the line can sometimes become blurred. The Ontario Court of Appeal recently addressed this blurring of lines.
From One Agency to Another
The Employer is a travel agency for whom the Employee (Respondent) worked for eight years, with one short interruption. When the Employee quit her job with the Employer, she went to work with a competing travel agency (Respondent)- the “New Agency.”
During her time working for the Employer, the Employee signed three employment contracts, the last one containing a clause reading: “[The Employee] agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by [the Employer], directly, or indirectly.”
One month after the Employee left work at the Employer to start at the New Agency, the Employer brought an action claiming, amongst other things, the Employee was in breach of the employment contract’s non-solicitation clause by soliciting business from four former customers of the Employee, something the New Agency encouraged her to do.
Non-Solicitation Clause is Essentially a Non-Compete Clause
The Trial Judge held the clause was unreasonable and unenforceable, stating “It constitutes a non-competition covenant which was not warranted, by the existence of any exceptional circumstances, for the reasonable protection of Donaldson’s proprietary interests. It contains no temporal limitation and it purports to restrict Murphy from doing business with any ‘corporate accounts and customers’ of Donaldson regardless of whether she had any contact or involvement with them during her tenure with Donaldson or whether they were customers of Donaldson at all during her tenure. The restrictive covenant also purports to restrict Murphy from accepting business with any Donaldson clients without regard to the type of business involved. The restrictive covenant is not limited to Murphy accepting business that competes with Donaldson in the travel industry but rather, on its face, would extend to any type of business which may be completely unrelated to Donaldson’s business.”
The Ontario Court of Appeal upheld the Trial Judge’s decision, writing “We see no error in the motion judge’s finding that the restrictive covenant was a non-competition clause.”
What Does This Mean for Employers?
Employers should be aware of what types of restrictive clauses they include in their employment contracts, if any. Where such clauses are included, their scope must be reasonable and carefully drafted, or they may be struck out or may be unenforceable if a dispute over the language of a contract arises.
If cautiously worded, non-solicitation clauses may be upheld and sufficient to protect an employer’s proprietary interest. In contrast, even if well-drafted, a non-competition clause is generally warranted only in exceptional circumstances. Overly broad clauses are less likely to be enforced.
The employment lawyers at Grosman Gale Fletcher Hopkins LLP have years of experience drafting and reviewing employment contracts. We can help create an employment contract that is straight-forward, clear and more likely to be upheld in Court, should litigation ensue. Contact us online or by phone at 416-364-9599 for any workplace related questions, including questions about employment agreements and restrictive covenants such as non-compete and non-solicitation clauses.
What Does This Mean for Employees?
Employees should only enter into an employment contract with both eyes open, in a fully informed manner, and only after obtaining independent legal advice from a knowledgeable employment lawyer. The consequences of signing a contract without a lawyer reviewing it can be significant and grave.
Employees should always have an experienced lawyer review any proposed contract, before signing, particularly one containing restrictive covenants. The employee should be fully aware of his/her rights and any potential restrictions that may attach following the dissolution of an employment relationship.
The lawyers at Grosman Gale Fletcher Hopkins LLP have been advising employees for more than 30 years. We have reviewed thousands of employment contracts and have helped employees protect their rights in the workplace. If you would like us to review your employment contract, or any other document that your employer or prospective employer would like you to sign, contact us online or by phone at 416-364-9599.
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