THE CANADIAN EMPLOYEE COMPETITION BLOG

A non-compete clause is an agreement between and employee and their employer. Typically, the employee agrees not to compete with their employer for a period of time after employment ends. The restriction on competition typically is time-limited, e.g. six or twelve months. Often, it only applies to employment in certain roles (such as the role the employee filled) and to certain areas, e.g. Canada or Canada and the United States.

Under a non-solicitation clause, an employee is permitted to compete with their former employer, whether that be with a new company or by starting their own business. However, they are prohibited from directly “soliciting” customers or clients of the former employer. In other words, the clause prohibits outreach to old customers or clients to entice or poach them away. Sometimes such clauses also prohibit attempts to lure away other employees of the former employer. Often, an agreement will prohibit both types of solicitation.

As is the case with non-compete clauses, non-solicits typically are for a limited time duration, e.g. six or twelve months. Sometimes they also only apply to certain areas, e.g. British Columbia, Canada or the United States.

The term “restrictive covenant” is a legal term to describe either a non-compete clause or non-solicitation clause. In both cases, a “covenant”, or promise, is given by the employee to restrict the nature of their potentially competitive activity after employment ends.

Canadian courts have said that employers often have legitimate interests in their customer base to protect and can make limited use of non-competes or non-solicits. For example, where an employee is the “personification of the company” to the customers, such that they would follow the employee to a new employer, a time-limited non-compete may be justified. Where an employer introduces an employee to several customers, it may be legitimate to prohibit the employee from trying to poach those customers after the end of employment for a period of time via a time-limited non-solicit.

On the other hand, the courts have held that employers are not entitled to use these clauses for the sole purpose of stifling competition. In fact, the courts recognize the rights of individuals to earn a living and will carefully scrutinize non-competes and non-solicits to ensure they are justified and go no further than necessary to protect the employer’s interests.

It is true that, very often, employers insert non-compete or non-solicit clauses in their employment agreements that are not enforceable. Often, the courts refuse to enforce them because they are ambiguous, too long in duration or go further than necessary to protect the employer’s legitimate interests. However, some employers are more careful and hire employment lawyers to draft these clauses to ensure they are enforceable.

It is a good idea for you to have an experienced employment lawyer review your contract to assess the enforceability of your non-compete or non-solicit. The lawyers at our firm have extensive experience reviewing such clauses for enforceability.

We highly recommend you hire a skilled employment lawyer with experience drafting such clauses. While no lawyer can provide you a 100% guarantee the clause will be enforced, an experienced employment lawyer can significantly increase the prospect of enforcement. Our firm has considerable experience drafting such clauses for our employer clients.

Some employees, typically very senior management and a limited number of other key employees, are considered to be fiduciaries, meaning they must act in the best interest of their employer at all times. A fiduciary’s duties may include not competing or soliciting former customers for a reasonable period of time after departure. It is wise to consult with legal counsel to assess whether you truly are a fiduciary and, if so, the nature of your obligations to your former employer.

In short, yes. As a hiring employer, you can be sued in the courts by employees’ former employer for a variety of unlawful acts in the hiring process. These can include claims for inducing breach of contract, i.e. encouraging employees to disregard their non-competes or non-solicits, or for encouraging them to leave without providing reasonable notice of their resignation. It is very prudent to obtain legal advice to immunize yourself as much as possible from such claims.