Non-Competition and Non-Solicitation Agreements and Post Departure Conduct
In the modern workplace, most employees eventually will move on from their current place of work to another employer. Statistic Canada says that, annually, more than eight percent of Canadians change their jobs.
In many instances, employers have legitimate concerns about their employees moving to competitors.
Will they lose customers that decide to follow the employee?
What if the ex-employee starts calling on customers to persuade them to move their business?
What if they have taken with them confidential information such as customer lists or pricing structures?
In each of these cases, the employer may wish to take pre-emptive steps to protect against competition by a former employee.
Equally, employees who are contemplating leaving for a competitor may have many concerns.
Can I compete given there is a non-compete clause in my contract?
Can I go after the customers I’ve been serving for many years?
Will I get sued by my employer if I leave for a competitor?
Pulver Crawford Munroe LLP advises and represents both employers and employees on these matters. Our employee competition practice entails advising on the following matters:
Assessing enforceability of non-compete and non-solicit clauses
Drafting non-compete or non-solicit clauses
Acting for clients in injunction proceedings (court applications to prevent certain forms of competition)
Acting for both employers and employees in claims for damages arising from alleged breach of obligations, such as breach of non-competes, non-solicits and fiduciary duties and misuse of confidential information
Providing independent legal advice to employees contemplating leaving one employer for a competitor
Providing strategic advice to employers or their prospective employees on how to move employees from one company to a competitor while reducing the risk of litigation
Our Employee Competition Practice Group
Effective, timely and cost-efficient advice is important when it comes to employee competition and experience matters. Our lawyers have deep experience advising both employers and employees. Group members include:
Dean writes extensively in the area of employee competition. He is the author of the Canadian Employee Competition Blog, an extensive review of the law of non-competes, non-solicits and other employee competition matters. His experience is recognized by his fellow lawyers in the employment bar, who frequently refer clients needing advice in this area to him.
Dean has advised several employers and employees in employee competition cases, in the investment advisor, insurance broker and several other sectors. He has advised more than 30 investment advisors and their new employers when they have moved their practices to new firms.
National Bank Financial Inc. v Canaccord Genuity Corp., 2018 BCSC 857 Dean successfully defended three investment advisors and their new employer in defeating an application by their former employer for an injunction to prevent them from soliciting the clients in their book of business.
National Bank Financial Ltd. v LePoidevin, 2018 BCSC 1190 Dean represented 13 members of an investment advisory team and their new employer in legal proceedings brought against them by their former employer after they moved their practice.
Paul acts for a wide variety of employers and employees in the private and public sectors. He often appears as counsel in the British Columbia Supreme Court, as well as the British Columbia Court of Appeal, and federal courts. He regularly advises employers and executives in departure and competition matters, including pre-departure advice, and post-departure strategy and negotiation. If necessary, he litigates such matters from the initial claim and injunction application, through the liability and damages phases of trial.
Paul has represented employers and litigated employee competition matters in virtually every business sector, including banking, financial, insurance, commercial real estate, auto, manufacturing, industry, technology, hospitality and professional services (medical, legal and accounting).
Frequently Asked Questions
What is a non-compete clause?
A non-compete clause is an agreement between and employee and their employer. Typically, the employee agrees not to compete with their employer for a period of time after employment ends. The restriction on competition typically is time-limited, e.g. six or twelve months. Often, it only applies to employment in certain roles (such as the role the employee filled) and to certain areas, e.g. Canada or Canada and the United States.
What is a non-solicitation clause?
Under a non-solicitation clause, an employee is permitted to compete with their former employer, whether that be with a new company or by starting their own business. However, they are prohibited from directly “soliciting” customers or clients of the former employer. In other words, the clause prohibits outreach to old customers or clients to entice or poach them away. Sometimes such clauses also prohibit attempts to lure away other employees of the former employer. Often, an agreement will prohibit both types of solicitation.
As is the case with non-compete clauses, non-solicits typically are for a limited time duration, e.g. six or twelve months. Sometimes they also only apply to certain areas, e.g. British Columbia, Canada or the United States.
What are restrictive covenants?
The term “restrictive covenant” is a legal term to describe either a non-compete clause or non-solicitation clause. In both cases, a “covenant”, or promise, is given by the employee to restrict the nature of their potentially competitive activity after employment ends.
What Value do Employers Gain from Non-Competes or Non-Solicits? Is that Fair?
Canadian courts have said that employers often have legitimate interests in their customer base to protect and can make limited use of non-competes or non-solicits. For example, where an employee is the “personification of the company” to the customers, such that they would follow the employee to a new employer, a time-limited non-compete may be justified. Where an employer introduces an employee to several customers, it may be legitimate to prohibit the employee from trying to poach those customers after the end of employment for a period of time via a time-limited non-solicit.
On the other hand, the courts have held that employers are not entitled to use these clauses for the sole purpose of stifling competition. In fact, the courts recognize the rights of individuals to earn a living and will carefully scrutinize non-competes and non-solicits to ensure they are justified and go no further than necessary to protect the employer’s interests.
I Have a Non-Compete Clause in my Contract. I’ve Heard the Courts Don’t Enforce Them in Canada, so I Suppose I Have Nothing to Worry About if I Leave to Take Up Work with a Competitor of My Current Employer?
It is true that, very often, employers insert non-compete or non-solicit clauses in their employment agreements that are not enforceable. Often, the courts refuse to enforce them because they are ambiguous, too long in duration or go further than necessary to protect the employer’s legitimate interests. However, some employers are more careful and hire employment lawyers to draft these clauses to ensure they are enforceable.
It is a good idea for you to have an experienced employment lawyer review your contract to assess the enforceability of your non-compete or non-solicit. The lawyers at our firm have extensive experience reviewing such clauses for enforceability.
I’m an employer. How can I make sure my non-compete or non-solicit clause is going to be enforced by a court?
We highly recommend you hire a skilled employment lawyer with experience drafting such clauses. While no lawyer can provide you a 100% guarantee the clause will be enforced, an experienced employment lawyer can significantly increase the prospect of enforcement. Our firm has considerable experience drafting such clauses for our employer clients.
My former company says I cannot compete with it, as I was a fiduciary. What does that mean?
Some employees, typically very senior management and a limited number of other key employees, are considered to be fiduciaries, meaning they must act in the best interest of their employer at all times. A fiduciary’s duties may include not competing or soliciting former customers for a reasonable period of time after departure. It is wise to consult with legal counsel to assess whether you truly are a fiduciary and, if so, the nature of your obligations to your former employer.
I’m an Employer and am Considering Hiring Some Key Employees of my Competitor. Should I Obtain Legal Advice?
In short, yes. As a hiring employer, you can be sued in the courts by employees’ former employer for a variety of unlawful acts in the hiring process. These can include claims for inducing breach of contract, i.e. encouraging employees to disregard their non-competes or non-solicits, or for encouraging them to leave without providing reasonable notice of their resignation. It is very prudent to obtain legal advice to immunize yourself as much as possible from such claims.
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At Pulver Crawford Munroe, our lawyers practice exclusively in labour and employment law. We know the players, we know the rules, and we have decades of practical experience. Our lawyers appear regularly before labour relations boards, human rights and employment standards tribunals, arbitration boards, and other administrative tribunals. We also have experience at all court levels, including the British Columbia and Federal trial and appellate courts, and the Supreme Court of Canada.