Non-Competition and Non-Solicitation: Assessing your risk

We often get calls from employees who are thinking about leaving their employment, have left their employment, or have been terminated, and are considering working for a competitor or starting their own business. They are often concerned about non-competition and non-solicitation clauses contained in their employment contract and whether such clauses are enforceable.

Non-Competition Clauses vs. Non-Solicitation Clauses

A non-competition clause is a provision which prohibits an employee from working for a competitor of a former employer, or opening up his or her own business in direct competition with the former employer.

A non-solicitation clause is a provision which prohibits an employee from encouraging the employer’s clients or staff to join the employee at a new business.

Enforceability

Typically, the courts have said that they will not enforce a non-competition clause where a non-solicitation clause would effectively protect the employer’s interests. The courts have said that there is a public interest for free trade and a non-competition interferes with that public interest.

The Courts will generally enforce a non-solicitation clause if the length of time it applies and the scope of the clients concerned are considered reasonable.

No Employment Contract with Non-Competition or Non-Solicitation Clauses

Even if an employee does not have an employment contract that contains a non-competition clause or a non-solicitation clause, it’s possible that he or she could be found to owe a fiduciary duty to the employer to not solicit clients. Where an employee held a position of senior management or could be described as a “key” employee, he or she may be precluded from exploiting that position to benefit his or her own business. There are a variety of factors that the courts will look at when determining if someone was a “key” employee.

The Costs of Breaching a Non-Solicitation Clause

If an employee breaches a non-solicitation clause, the employer will typically have to prove damages (i.e. the amount of money that was lost as a result of the solicitation).

If the employee is found to owe a fiduciary duty, there are two different approaches taken by the courts for awarding damages:

• The amount of benefits that were wrongfully acquired because of the breach, which focuses on the employee’s gain as a result of the breach.
• Restoring the employer to the position it would have been in if the breach had not occurred, which focuses on the employer’s losses.

If you are currently employed and thinking or starting your own business or moving to a competitor, or if you’ve been terminated and are considering either of those options, one of our lawyers would be happy to review your obligations under your employment contract and any possible fiduciary responsibilities. Please contact us at 647-204-8107 or [email protected].