The Main Issue Regarding a Non-Solicitation Clause: Will Departing Employees Take Customers With Them?
To plan for this worst case scenario, we like to ask at the time of hiring, “Could this person take your customers to a competitor if he or she quits?”
The Solution: A Non-Solicitation Clause in the Employment Agreement
If the potential for poaching customers exists, the employer needs to protect its client relationships. The best way to do this is by requiring the employee to sign an employment contract with a non-solicitation clause.
In the non-solicitation clause, the employee agrees to neither: (i) solicit certain customers for a specified period of time; nor (ii) take advantage of any business opportunity that came to his or her attention while employed.
The Non-Solicitation Clause Must be Reasonable to be Legally Enforceable
For the courts to enforce this kind of agreement, it must be reasonable between the parties with reference to the public interest. The court will balance the public interest in maintaining open competition and discouraging restraints on trade on the one hand, and on the other hand, the right of an employer to the protection of its client relationships.
The non-solicitation clause will not be enforced if it is ambiguous. In this regard, the Supreme Court of Canada has stated: “if (a non-solicitation agreement) is ambiguous, 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. Thus, an ambiguous restrictive covenant is, by definition, prima facie unreasonable and unenforceable”
In other words, when deciding whether to enforce a non-solicitation clause, the court will consider whether the prohibition is too broad. For example, is the employee forbidden from contacting clients with whom he or she has had no prior dealings? Does this prohibit the employee from working in a geographic location where he or she has not worked before? And, does this non-solicitation clause impose a period that exceeds the employer’s normal sales cycle?
It is important to draft a non-solicitation clause that fits the employer’s specific circumstances because the courts will not read down or blue pencil it. This means that the courts won’t amend it to make it enforceable and the employer needs to get it right the first time.
If you have any questions about non-solicitation clauses or employment agreements, you can reach us at 1-800- 640-1728 or at [email protected]
A recent case underscores the importance of including a properly drafted termination clause in your organization’s employment contract. The Facts In March 2010, CIGI hired Mark Menard, a chartered accountant, as Senior Director of Finance. He was responsible for the...read more
If you are a director or a party to a unanimous shareholder agreement did you know that you are personally liable for unpaid wages and you could go to jail for up to one year for failing to pay them? So if you are a small business owner, have signed a unanimous...read more
Some recent changes in the law make Ontario’s employment laws more employer-friendly - especially for small businesses. This blog discusses five of these changes. Eliminating a scheduled increase in the minimum wage Under Bill 148, the minimum wage was scheduled to...read more