Show Notes:

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Lecture Slides:

Welcome everyone this is Amer Mushtaq from YouCounsel.

We are going to talk about restrictive covenants in an employment contract. In this lecture we will cover specifically the non-solicitation clauses. This is our 2^nd lecture on this topic.  We have previously posted a lecture which talks about restrictive covenants in general and then specifically deals with non-competition clauses.  If you haven’t watched that lecture it may be a good idea to watch that one 1^st; before you watch the non-solicitation because some of the fundamental concepts are covered in more detail in that lecture. We will talk about non-solicitation today and I will briefly talk about some of the basic concepts as well.

This lecture is not legal advice.  It is only for educational purposes.  If you have any specific questions regarding your own issues, you should contact a lawyer or a paralegal or the Law Society of Ontario for anything for a less

What is a restrictive covenant?  It is a clause in your employment contract that limits the employee’s ability to do something during or after employment.  Most of the time these clauses talk about what you cannot do after your employment ends—whether you resign or your employment is terminated. What you cannot do during your employment is generally covered by some of the fundamental principles of your employment relationship. For example, you have an obligation to work in the best interest of your employer and you have a duty of loyalty and fidelity towards your employer.  What are some of the common restrictive covenants? Non-competition: we have a lecture on that. Non-solicitation: we will talk about that today. Confidentiality; and if you have any intellectual property issues with respect to your employer, there may be some clauses with respect to your conduct regarding intellectual property.

What is a non-solicitation clause? Non-solicitation clause limits the employees ability to solicit any of the customers of the employer.  That is one main area often on solicitation. The 2nd main area is it restricts the employee’s ability to solicit any of the employees of your former employer.  Those are the 2 areas that are covered by on-solicitation clauses. 

In our previous lecture we had taken an example of a dentistry practice.  We’ll continue with that example today.  We had said that imagine you were an employee or a dentist; you work for a dentistry practice where there may be other dentists employed as well; you don’t own the business but you are just an employee of that dentistry practice. Now your employment is terminated or you have resigned and you have gone away. And you, for example, in your scenario you have started another business which is in competition with your former employer but you do have a non-solicitation agreement with your former employer. In that situation your non-solicitation agreement may limit your ability to solicit business from the clients of your previous employer or solicit any of the employees. Maybe you like the receptionist at the previous employer and you want to offer a better job and better salary—you may not be able to do that if you have a non-solicitation agreement with your former employer.  

Similarly, you may be familiar with a dental hygienist or other dentists that you want to attract to your business—you may not be allowed to do that.  In most of the cases with respect to securing or safeguarding the business interests of the employer, if a non solicitation clause is properly drafted that is usually sufficient to safeguard any of the business interest of the employer from a departing employee.

What are some of the underlying principles of non-solicitation? They are somewhat similar to the principles of non-competition. What you want to keep in mind is that courts prefer non-solicitation clauses over non-competition clauses.

As I said earlier, in most cases courts believe that if you’re a business and you want to protect your interests (business interests) that could be sufficiently achieved through non-solicitation clauses as opposed to a non-competition clause. A court will prefer a non-solicitation clause in an employment agreement and will enforce it if it is properly drafted and has the correct scope. A court will enforce the non-solicitation clause if it is properly drafted.  The standard that the court uses to determine whether non-solicitation clauses are appropriate is again reasonable standard. Reasonableness is a similar standard that was used in a review of non-competition clauses.  The same reasonable standard is used in the assessment of a non-solicitation clause.  The court will also look towards the wording of the clause to determine whether the wording is clear; there’s no ambiguity; the clause is not vague; it is narrow—it is narrow enough that it protects the interests of the business, yet allows the employee to earn his or her own living through the means that the employee wants to engage in.

What is the legal framework that the court adopts in reviewing and determining whether non-solicitation clauses are enforceable?  It’s similar to what’s in non-competition. The court will look at the geographic limit and closely review and determine whether the geographic limit is appropriate or not.  The court will look at the temporal limit.  We have discussed both of these factors in our previous lecture on non-competition.  You may want to check that lecture if you have not reviewed it. If the scope is too broad, the court will throw the clause out. If the temporal limit is too long or if there is no temporal limit – for example, the clause states that the non-solicitation will continue indefinitely, then the court will definitely throw that clause out and make it unenforceable.

It is important and is slightly different from non-competition—the action that you are not to do is solicitation. The clause should be limited to the act of solicitation. Solicitation is you reaching out to a customer of your previous employer. You reaching out to an employee of the previous employer—that is the solicitation part.  The act should be limited to non-solicitation. You as an employee should not be soliciting.  What that means is, if a previous client of your former employer finds out on his own or her own means that you have started your own business and wants to bring his or her business to you then that’s not solicitation. You are not doing anything to solicit that business.  In that case, accepting that business will be fine. Similarly, if another employee resigns and then happens to apply for a position in your organization, then that may not amount to solicitation. It’s the act of solicitation that is prohibited.  

The court will also closely monitor the scope of the limitation.  What exactly is it that you are not allowed to do?  For example, in case of dealing with previous customers, the clause may say that for a period of one year you cannot solicit “all of” or “any and all of” the customers of the former employer. But the company may be very large and you may have only dealt with a very small segment of the customers and the other customers you may not have dealt with them; you had no relation with them while you are employed; you did not know them directly as part of your employment, is it fair to limit your solicitation to all of the customers that you may have not even dealt with? Or, should it be limited to the customers that you have dealt with?  There could be another way of limiting this – that is to say that you have to not solicit the customers that you had dealt with personally over the last one year of your employment or over the last 2 years of employment. There is further restriction to the act of solicitation and the court may look closely into the language and determine what exactly is being prohibited with respect to non-solicitation and whether that prohibition is reasonable to safeguard the legitimate interest of the employer or the company.

Now let me give you a real example. I’ll take you to a case that was recently, in 2016, decided by the court. Part of it dealt with the non-solicitation. Let’s go there and then we will read it together so that it will give you a real sense of how the courts look into these non-solicitation clauses.  In this case there was a non-solicitation clause.  Let’s see how the court dealt with that.  There’s paragraph 18. By the way this is on Canlii website. You can you can use this name in to search in Canlii and you can find this case. Paragraph 18 says:

[18]    The covenant in the employment agreement upon which Donaldson relies reads as follows:

Mary agrees that in the event of termination or resignation that she will not solicit or accept business (and this is important and I will talk about it) from any corporate accounts or customers that are serviced by Uniglobe Donaldson Travel, directly, or indirectly.

It’s a pretty broad restriction.  It doesn’t even have a temporal limit. How has the court analyzed that? The court says:

[19]           It is noted that this covenant (hereinafter referred to as the “restrictive covenant”) contains neither a geographic nor a temporal restriction on Murphy’s obligation.(there’s no geographical limit, there’s no temporal limit and most likely on that basis the court will in itself throw out this clause and not make it enforceable) It is also noted that the obligation which the restrictive covenant purports to place on Murphy extends beyond an obligation not to solicit corporate accounts or customers that were and are serviced by Donaldson to include an obligation not to “accept business from” such accounts or customers.(when I mentioned that the obligation should be limited to not solicit not that not to accept business because business has a right to go wherever it wants to go.  If someone comes and brings business to you because they like you, because they like your business or because they like your customer service they are entitled to do that. They are not stuck they are not bound with your previous employer. If someone brings you business, you are allowed to accept it. It’s the solicitation part that you are not allowed.  When this clause says that Mary was not allowed to solicit or accept business that makes the clause unenforceable.)

It also purports to extend the obligation not to solicit or accept business, of any nature, from corporate accounts and customers of Donaldson generally, without restricting them to corporate accounts and customers which had been serviced by Murphy during the course of her employment with Donaldson or even which were corporate accounts or customers of Donaldson during her tenure.(You see how the court analyzes the specific clause to figure out exactly what is the nature of limitation and whether that limitation is reasonable or not and in this case the court found that the clause was not enforceable. This is the case name that I mentioned: Donaldson Travel Inc. v. Murphy Et Al, 2016 Onsc 740 (Canlii). You can put it in Canlii and you can get this whole case and read it for your interest.

What you want to remember is that the non-solicitation clauses will be enforceable if they are reasonably drafted and properly drafted. The court will enforce it. The court believes that non-solicitation clauses are sufficient in most of the cases for the employer to protect its interest and non-competition clause may not be necessary. Again, a word of caution from the previous lecture is that when you are an employee and when you are negotiating you should take extreme care in negotiating non-competition or non solicitation clauses. The 1st principle of negotiation is whether you have the leverage in that negotiation. If the employer is imposing an employment contract on you and your position is simply to take it or leave it, then obviously you don’t have any room to negotiate to begin with but again you want to read the clause carefully to see whether the clause is drafted properly or not.  If the clause is too broadly drafted or not properly drafted and you believe that the clause may not be enforced by the court then is it worth it for you to raise that issue and give the employer the opportunity to fix the clause so that it could be enforceable if challenged in court.  These are some of the things to consider and

I hope this gives you a sense of how the non-solicitation clauses work. We will talk about confidentiality and other clauses in our future lectures.

Thank-you for watching.