Employers need to protect their customer base. Employees need to retain control and autonomy over their lives. The potential conflict between basic tenets of the employer-employee relationship are readily apparent in Donaldson Travel Inc v Murphy, 2016 ONCA 649 [Donaldson Travel]. In that recent decision, Ontario Court of Appeal emphasizes the difference between non-solicit and non-compete clauses in employment agreements, and remind us that courts prefer not to interfere with an individual's ability to earn a living any more than is reasonably necessary.
While post-termination non-competition clauses that restrict individuals from working in the same industry as their former employer may be enforced by Canadian courts in some cases, they are considered prima facie unenforceable for restraint of trade. By comparison, if sufficiently limited in scope, post-termination non-solicitation clauses are generally perceived as more reasonable. They allow individuals to continue working in the same industry, as long as they do not actively contact their former employer's customers for business opportunities, or soliciting their former employer's workers away from their employment for a reasonable period of time.
In Donaldson Travel, the employer tried – unsuccessfully – to expand the scope of a post-termination non-solicitation clause to prevent a former employee from accepting any business from Donaldson's customers. The non-solicitation clause in question included the following prohibition:
"[The employee] agrees that in the event of termination or resignation that she will not solicit or accept business from any corporate accounts or customers that are serviced by [the employer], directly, or indirectly." (emphasis added).
A motions judge found the prohibition on accepting business to be unreasonable and unenforceable, and struck the clause down in its entirety. Considering the clause to be akin to a non-competition clause, the Ontario Court of Appeal agreed with the motions judge's finding, stating:
"We see no basis on which to interfere with the motion judge's finding. Further, given that the restrictive covenant is a non-competition clause (as opposed to a non-solicitation clause) and also because it contains no temporal limitation, there is no basis on which to interfere with the motion judge's conclusion that the clause is unreasonable and therefore unenforceable.
In general, to stand a reasonable chance of enforceability, non-solicitation clauses should be clearly and narrowly drafted to prohibit former employees from soliciting customers they serviced directly for a post-termination period that is reasonable in the circumstances. If the clause is unclear or overreaches in any way, it is very likely to be struck down in its entirety.
Written with the assistance of Shreya Tekriwal, articling student.
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