For the London Free Press – October 8th 2007

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Courts seem to be scrutinizing non-solicitation clauses of former employees more closely. Businesses would be wise to take a look at their existing non-solicitation provisions to take this into account.

A non-solicitation clause prevents employees from soliciting customers of their former employer to sell them a competitor’s goods or services.

Conventional legal wisdom was that non-solicitation clauses were easier to enforce than non-competition clauses (which state a former employee can’t work for a competitor). Non-competition clauses must be narrow in scope to be enforced. Recent case law says non-solicitation clauses in employment contracts also will be looked at to ensure they do not go beyond legitimate business protection.

Courts want to ensure the restrictions within the clauses do not overly limit the employee’s ability to find new employment, while still providing protection for proprietary rights of the former employer. The kind of restrictions or limitations the courts used to accept as necessary to protect the integrity of the business are narrowing.

When a court considers non-solicitation clauses, it will not correct deficiencies in the wording. If it is found to be restrictive in one particular aspect, they will deem the entire section to be inoperable.

Two recent decisions of the Ontario Superior Court and the Ontario Court of Appeal indicate that employers are held to a high standard of reasonableness when restricting the future earning potential of former employees.

Often geographical restrictions are too broad. The courts prefer limitations on solicitation of those who that particular employee specifically dealt with or knew of, rather than on all current and prospective clients of the business.

This was the case in a decision called IT/NET Inc versus Cameron, in which a sub-contractor signed a non-solicitation agreement which prevented him from soliciting clients not only at his job site, but in other locations within the company. The clause would have applied whether the contractor knew his target was an IT/Net client or not, and it had no spatial limit, so would apply anywhere in Canada.

The court found it was unreasonable to require such a covenant between the two parties, and that IT/Net did not require that kind of protection.

In Trapeze Software Inc. versus Bryans, the court considered the grounds on which a covenant has to be reasonable.

They include: that the employer actually had a proprietary interest to be protected, that the limitations on geographic work zones, or the duration of the covenant was not too broad to impede the ability of the employee to gain new employment, and that it is not against competition generally.

This means it is permissible to restrict contact between customers and former employees, but it may be necessary to limit that to customers the employee dealt with or was aware of.

These two cases are not a dramatic change, but clarify what has been known for many years; that any restrictive clauses in employment contracts must be reasonable.

Reasonableness is hard to define, but these cases tell us that so long as the former employee is not completely blocked from the industry, and not completely prevented from gainful employment, and so long as the employer has something legitimate to protect, like client lists, or trade secrets, the covenants will stand up to the court’s scrutiny.