Non-Competiton/Non-Solicitation Agreements: Unwritten employee obligations are more enforceable with written non-solicitation agreement

All businesses are built on relationships. Some more than others. Relationships with clients, suppliers and business partners.

The boss, however, is only one person and cannot be involved personally with all these relationships. Almost always, maintenance of these relationships has been delegated to employees. Employment relationships, however, rarely last for an entire career anymore. Sooner or later, the employee leaves. If the employee leaves to go and work for a competitor or start their own competitive business, it can be quite easy for that employee to take that relationship, and the business, with her.

While it is usually that employees who are responsible for maintenance for key relationships have an obligation not to exploit those relationships by soliciting the customer for competitive products or services immediately after leaving their employment, it is best not to rely on these unwritten obligations.

Courts will rarely enforce broad non-competition agreements which attempt to keep the employee from competing altogether with their former employer. The courts will, however, enforce reasonable non-solicitation agreements.

A non-solicitation agreement is not an agreement to refrain from becoming a competitor. It is an agreement that the departing employee will not solicit your clients for a fixed period of time in order to sell them competitive products or services.

A short form version of a non-solicitation agreement would look like this: The Employee agrees that she shall not, directly or indirectly, for a period of one year from the date of the cessation of her employment for any reason, solicit or contact any customer of the Employer’s who was a customer of the Employer solicited by the Employee on behalf of the Employer to become a customer during the last 12 months of her active employment in order to sell that customer competitive products.

I am going to pause to note that noone should simply transcribe this non-solicitation clause and attempt to use it. There may be vagaries and peculiarities of your business which will require modification. Only an employment lawyer who has worked extensively in this area and is fully apprised of the case law can tell you whether the courts will find that 6 months, a year or 2 years of non-solicitation is reasonable or not.

Some non-solicitation agreements limit the customers who cannot be solicited to those that were dealt with by the employee themselves. If it was a large company and that employee was only responsible for some of the relationships, she might not even know who all the customers are so how can she refrain from soliciting them?

In other situations, you may have to define who those customers were that were solicited by the employee in the last 12 months of her employment. If she routinely sent out a mass email to 20,000 potential clients which covered the entire potential clientele in the industry, an attempt should be made to limit the definition. If that employee has solicited on your behalf everyone in the industry within the last 12 months, then your non-solicitation agreement has really become a non-competition agreement keeping her from operating in the industry and the courts may not enforce that aspect of the agreement.

In addition, even if you have got the non-solicitation clause right, the employee must get something in exchange for agreeing to the non-solicitation provision. Either it should be part of the initial offer of employment or a bonus, raise or other benefit must be received in exchange for their agreeing to the non-solicitation clause. Alternatively, the Ontario Court of Appeal has stated that if you tell the employee that if they do not sign the agreement they will be terminated with a reasonable severance package and they sign, it is enforceable. The courts have held that by refraining from carrying out your threat of termination you are providing the employee with something valuable in exchange for their signing the agreement. Although I think that decision by the Ontario Court of Appeal was rather odd, I don’t make the law.

If you don’t have such an agreement, that does not mean employees are free to leave their employment and immediately exploit the relationships you have paid them to build with your clients to compete with you. It just means that instead of having one shield to defend against such activity, you will have two: the unwritten obligations already existing in law and a written agreement. When things get litigious and a valuable customer base is at stake, those shields tend to become swords.

As published in the Hamilton Spectator, November 16, 2004. Ed Canning practices labour and employment law representing both employers and employees with Ross & McBride LLP.