Former Employees Allege Non-Solicitation Clause Was Too Vague To Be Enforced
Most people may think of employment contracts as agreements that govern a relationship between an employee and employer for the duration of that working relationship. However, some employment contracts have clauses that affect the parties beyond the end of the employment relationship. One such type of clause is the non-solicitation agreement, which typically prevents an employee from “stealing” or “poaching” customers away from their former employer. Of course, as we often see in employment contracts, the language of the clause plays an important role in determining the enforceability of such clauses. The Court of Appeal for Ontario recently issued a decision concerning a non-solicitation clause that the employees had argued was too broad.
The employment relationship
The employees were each hired by two companies, addressed collectively as “MD.” Employee 1 was hired in 2003 and Employee 2 was hired in 2005. Their jobs were to provide financial services to MD’s clients, who were primarily physicians. They each signed a non-solicitation agreement which read as follows:
Non-Solicitation. The 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 termination should occur, within the geographic area within which s/he provided services to the Employer.
“Solicit” means: to solicit, or attempt to solicit, the business of any client, or prospective client, of the Employer who was serviced or solicited by the Employee during his/her employment with the Employee.
Both employees left MD in 2013 to join a competitor. On their first day at work with the new employer, they each wrote out, from memory, a list of MD’s clients that they had serviced while working for MD. They began phoning these clients.
The trial and appeal
The trial focused on whether the non-solicitation clause was enforceable. It did not address damages. After eight days of testimony as well as written and oral submissions, the trial judge came to the conclusion that the employees had breached the non-solicitation agreement. The new employer was also held vicariously liable for the breach.
The employees appealed on the grounds that the trial judge applied the wrong legal principles to the enforceability of the restrictive covenants and non-solicitation clauses in an employment law context. They alleged the agreement was too ambiguous in terms of the word “solicit” as well as its geographic scope, which clients were applicable, and the length of the restriction.
The court disagreed with the employees. The opened its analysis by stating “the meaning of the word ‘solicit’ is obvious.” The court did not believe the employee’s testimony that the calls made to former clients were simply “courtesy calls.” The court found the calls o have been made with a view to bring the clients to the new employer, following a pre-determined structure.
The test for the enforceability of a non-solicitation clause is laid out in a 1978 Supreme Court of Canada decision. The court determined that the employer is a “specialized company dealing with physicians and has a property interest in ensuring that its business is not used by financial planners to take customers away from it.” The court held the policy to be reasonable in terms of the public interest, in that it protects the employer without unduly compromising its employees. Furthermore, the two year term was not ambiguous either. Finally, the proscribed activities and geographic scope were found to have been clearly defined by the agreement. The employees “were not to solicit the business of clients or prospective clients they had serviced or solicited while employed by the respondents for a period of two years after they left MD’s employ.”
The appeal was dismissed and costs were awarded to the employer.
The experienced employment law team at NULaw help employers draft clear, concise, contracts, designed to keep parties out of the courts. We also help both employers and employees understand their rights and obligations under employment contracts. Please reach out to us online or at 416.481.5604 if you are an employer looking to draft clear contracts, or an employee or employer involved in an employment law issue.