Canadian Employment Law Today

September 26, 2018

Focuses on human resources law from a business perspective, featuring news and cases from the courts, in-depth articles on legal trends and insights from top employment lawyers across Canada.

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Soliciting trouble with restrictive covenants Departing employees and the employers they leave need to be clear on solicitation; New employers can also get in trouble for breaching non-solicitation agreements BY DAVE BUSHUEV A n Ontario employer must share liability with two new employ- ees for breaching the employees' non-solicitation clause with their previous employer for encouraging them to contact former clients, the Ontario Supe - rior Court of Justice has ruled. e employees left their jobs and joined a new employer — a competitor of the former employer — and immediately began to call their former clients, ostensibly to "notify" those clients of the employees' new place of employment. e court found these calls amounted to solicitation, in breach of non- solicitation agreements. e decision — MD Physician Services Inc. v. Wisniewski — is significant for two reasons. First, the court found the non- solicitation clause enforceable despite ad - mittedly vague language defining its geo- graphical scope. Second, the court found the actions of the employees in contacting former clients amounted to "solicitation" and not merely "notification." e decision demonstrates the benefit of a well-drafted non-solicitation agreement and also highlights the potential risk to a former employee and the new employer when they do not comply with a non-solici - tation agreement. What is a restrictive covenant? Generally, there are two types of restric- tive covenants: those that restrict compe- tition and those that restrict solicitation of clients. e former restricts a depart- ing employee from conducting business with former clients and customers gen- erally, while the latter limits a departing employee from soliciting their business specifically. Canadian courts are more reluctant to enforce a non-competition covenant because it can create a signifi- cant barrier to re-employment. By con- trast, a non-solicitation clause that is: "suitably restrained in temporal and spa- tial terms — is more likely to represent a reasonable balance of the competing in- terests than is a non-competition clause. An appropriately limited non-solicitation clause offers protection for an employer without unduly compromising a person's ability to work in his or her chosen field. A non-competition clause, on the other hand, is enforceable only in exceptional circumstances," said the Ontario Court of Appeal in its 2008 decision of H.L. Stae- bler Co. v. Allan. Accordingly, when considering the en- forceability of a restrictive covenant, courts have traditionally asked the following ques- tions: • Does the employer have a proprietary in- terest entitled to protection? • Is the covenant reasonable in terms of the public interest? • Is the restrictive covenant clear and unam - biguous with respect to: Ο length of time Ο geographical scope Ο scope of the restricted activity? It is important to note in Canada (unlike in the United States, for example), a court will not edit or amend a restrictive covenant otherwise non-compliant with the law, un- less the focus of the edit is a trivial matter, not going to the heart of the restriction. is is to encourage Canadian employers to draft covenants that are minimally intrusive and not overly broad. What happened in this case? e non-solicitation clause at issue read as follows: "'solicit' means: to solicit, or attempt to solicit, the business of any client, or pro- spective client, of the Employer who was serviced or solicited by the Employee dur- ing his/her employment with the Employer . . . 4.1: Non-Solicitation. e Employee agrees that the Employee shall not solicit during the Employee's employment with the Employer and for the period ending two (2) years after the termination of his/her employment, regardless of how that termi - nation should occur, within the geographic area within which s/he provided services to the Employer... 4.2 Geographic and Time Limitations. e Employee acknowledges that the time and geographic limitations in Article 4.1 are reasonable and necessary for the adequate protection of the Employer's business and property. In the event that the time or geo - graphic limitation is found to be unreason- able by a court, then the Employee agrees to be bound to such reduced time or geo- graphic limitation as said court deems to be reasonable." ere was no evidence the departing employees took with them any client infor - mation belonging to the former employer. However, the day following their departure, the employees created a list, from memory, of former clients and prospective clients, and began to call them by phone. Several clients ultimately moved to the new em - ployer. e departing employees argued they had not "solicited" any clients. Rather, they testified, the purpose of their calls was to "notify" former clients of their new em - ployment. e court did not accept this ev- idence and found the "telephone contacts made by (the departing employees) during their early days at (their new employer), although made in the guise of simply in - forming their clients of their new place of employment, was meant to be, and became, solicitation." e court based this ruling on the follow - ing: • e phone calls were made on the first day at the new job and as quickly as possible. • Rather than send an email or leave a voice - mail, the calls had to result in direct contact with an individual. • At the direction of the new employer, the calls followed a pre-determined formula whereby the former employee advised of their new employment and paused in the hopes the client would request their busi - 4 Canadian HR Reporter, a Thomson Reuters business 2018 CASE IN POINT: RESTRICTIVE COVENANTS IN A 2017 DECISION, the Ontario Superior Court of Justice (upheld on appeal) found two former employees and their new employer liable for breach of a non-solicitation agreement the employees had with their former employer. The non-solicitation clause prevented the two employees from soliciting clients from their former employer for a period of two years following the end of their employment. BACKGROUND

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