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Court of Appeal upholds non-solicitation clause against departing employee

A properly drafted non-solicitation clause is necessary to avoid departing employees from stealing clients and ensuring that the non-solicitation clause is upheld.

non-solicitation clauseA departing employee can cause your organization all kinds of problems. Especially if the person is the face of the organization to a customer.

A properly drafted non-solicitation clause in an employment contract can, however, prevent a departing employee from stealing your clients for a reasonable period of time.

The courts consider whether the language of a specific non-solicitation is reasonable and therefore enforceable. To be legally enforceable, a non-solicitation clause must generally be narrowly drafted, clear, and reasonable in relation to the activity it seeks to restrict.

The Supreme Court of Canada has stated that if a non-solicitation clause is unclear, “in the sense that what is prohibited is not clear as to activity, time, or geography, it is not possible to demonstrate that it is reasonable.”

Factors a court will consider when deciding whether a non-solicitation is reasonable are whether: (i) the employee is forbidden from contacting clients even if they were unaware they were clients; (ii) the employee is prohibited from soliciting in a geographic location where they have not worked before; and.(iii) the clause imposes a period that exceeds the employer’s normal sales cycle. The courts are required to balance the employer’s legitimate business interest in protecting its proprietary interest in the client relationship with the employee’s right to earn a living.

Thus, drafting non-solicitation clauses can be akin to walking a tightrope: if it is drafted too narrowly, not all post-employment activities will be covered by the clause, but if it is drafted too broadly, the entire clause may be struck down. The courts will not amend a clause to make it enforceable.

A departing employee who is found to have breached a non-solicitation clause can be ordered to pay damages to the employer. In particular, the employee can be forced to pay back the wrongfully acquired profits, or be ordered to restore their employer to the position it would have been in had the breach not occurred. The departing employee’s new employer could also be found to be liable for the employee’s behaviour.

This is precisely what occurred in a recent Court of Appeal decision (Wisniewski v MD Physician Services Inc.), where two employees left MD to join RBC Dominion Securities, a competitor of MD. Both employees had signed a non-solicitation agreement that stated:

The Employee agrees that the Employee shall not solicit during the Employee’s employment with the Employer for the period ending two (2) years’ after the termination of his/her employment, regardless of how that termination should occur, within the geographical area within which s/he provided services for the Employer.

“Solicit” was defined to mean “to solicit, or attempt to solicit, the business of any client, or prospective client, of the Employer who was serviced or solicited by the Employee during his/her employment with the Employer.”

On their first day of work at RBC, the two employees wrote out from memory a list of MD’s clients whom they had serviced and began to call them. At trial, the employees described these calls as “courtesy calls.”

The trial judge disagreed, finding that the two employees had breached the non-solicitation agreement, and concluded that RBC was vicariously liable for the breach.

On appeal, the employees argued that the agreement was ambiguous with respect to the term “solicit,” the geographic scope of the clause, the applicability to prospective clients, and the duration of the restriction.

The appellate court did not agree, finding that the meaning of the word “solicit” is obvious. Contrary to how the employees described them, the calls were not courtesy calls, but rather were calls made with a view of bringing clients to their new employer. As a specialised company dealing with physicians, MD had a proprietary interest in ensuring that its business was not used by financial planners to take their customers away. The language in the non-solicitation clause was reasonable in terms of the public interest, as it protected MD’s proprietary interest without unduly restricting the employees’ ability to earn a living.

All employers should seriously consider including a property drafted non-solicitation clause in the employment contract of any employee who has a close working relationship with the organization’s customers.

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Doug MacLeod, MacLeod Law Firm

Employment and labour lawyer at MacLeod Law Firm
For the past 25 years, Doug MacLeod of the MacLeod Law Firm has been advising and representing employers in connection with employee terminations. If you have any questions, you can contact him at 416 317-9894 or at doug@macleodlawfirm.ca. Read more
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