UNDERSTANDING A NON-SOLICITATION CLAUSE
UNDERSTANDING A NON-SOLICITATION CLAUSE
A very common component of almost all employment contracts is the non-solicitation clause, which protects the rights of an employer and prohibits an employee from soliciting and actively pursuing clients, customers, vendors, business partners or other employees of their employers during their employment, and in most cases, for a specific period after the caseation of the employment as well. It also restricts soliciting activities of an employee geographically, i.e., specifies a location where the clause is effective. As mentioned, it is usually in the form of a clause within the employment agreement but can be a separate agreement too.
However, it is usually difficult to enforce a non-solicitation clause in a court of law. An employer can effectively enforce a non-solicitation clause only if the terms of the agreement are clear, reasonable, and unambiguous concerning the employee’s position. Usually, a non-solicitation clause is referred to as a restrictive clause, i.e., they restrict an employee from doing something. When challenged, the courts analyse the clause and interpret the contract with respect to the clause being unenforceable and shift the onus on the employer to prove the contrary. If the employee can prove the unambiguity and unreasonableness of the clause with respect to the period or the geographical location being too vague and broad in application, the courts strike it down. A non-solicitation clause can also be proved to be ineffective if there is no need to protect the business interest of the employers. However, where the breach of a non-solicitation clause is proved, the employee is liable to pay damages to the former employer, and the amount is directly proportional to the loss incurred by the employer due to such breach. The reason behind such high-level scrutinization of the non-solicitation clause is because of its restrictive nature and prevents an employee from earning a livelihood. If it is proved that a non-solicitation clause is ineffective, the courts will treat it as if it was never signed.
In Camino Modular Systems Inc v Kranidis, 2019 ONSC 7437, it was held that for a non-solicitation clause to be valid, it must have clear language that advises the former employee which customers or objects are off limits. An employer can not merely mention ‘any business relation’ or ‘affiliate’ and treat the clause as effective and valid.
A non-solicitation clause is often confused with a non-competition clause. While the former prevents an employee from poaching the employer’s staff, clients etc., the latter prevents an employee from working for a competitor of the employer for a specific amount of time after the employment ends. Courts are likely to uphold a non-solicitation clause rather than a non-competition clause, for the reason of the latter is too broad.
The Ontario Government introduced Bill 27, also known as the Working for Workers Act, 2021, bringing several changes to employment law. For provincial workers, there is an absolute ban on the non-competition clause, however, executives such as chief operating executive, chief financial officer, chief human resource officer etc., are exempted from such ban. Another exception is in the case of a complete or partial sale of the business and the seller becoming the employer of the buyer; seller is exempted from competing. It is also important to note that the new legislation is effective from 25th October 2021 and the non-competition clauses entered into before this date will be untouched by it, as confirmed in Parekh et al v. Schecter et al, 2022 ONSC 302. The aim to amend the Employment Standard Act 2000. S.O. 2000, Chapter 41, is to make Ontario employees/workers centric and enhance innovation in the province.
Though other restrictive clauses, such as the non-solicitation clause, will remain legal, but it is being argued that the language of Bill 27 may be broad enough to include them as well. Nothing is set in stone currently, but if it is proved in the court that the contents of the clause are unclear, ambiguous and unreasonable, it is very difficult for the employers to enforce the same.
If non-solicitation clauses become enforceable and applicable by default, then any employee would be made to choose between aiming for better salaries, benefits etc. and being sued for breach of their employment contract and facing its consequences. On the other hand, if employers don’t include such restrictive clauses, they are prone to multiple dangers such as data breaches and leaks of their trade secrets, clients, internal processes etc. The courts must choose the lesser evil in cases of breach of the non-solicitation clause and aim to strike a balance between the needs of the employee and the employer.
- By Deeksha Nayyar, LLM Candidate at Osgoode Hall Law School
