Non-Competition and Non-Solicitation Clauses or Agreements
Non-competition clauses, commonly called non-comps, are pretty standard in written employment contracts. Similarly, non-solicitation clauses, are very common. Usually, both of these types of clauses are in an employment contract but occasionally, they are found in stand alone agreements, perhaps attached to a sale agreement (shares or assets). Quite often, we are asked what they are and whether they enforceable.
Lets start with non-comps. Essentially, they attempt to prevent an individual from competing with a business for a certain period of time and within a certain geographical area. With a non-solicitation clause or agreement, there is no restriction on working in a certain field but the individual is prevented from contacting existing customers, clients and patients.
How enforceable are they? This is not a black and white situation. Past court decisions tell us that it depends on the situation. As a general rule, the more restrictive in terms of the time period (eg. 3 years) and geographical area (eg. Norfolk County), the less likely they are to be enforceable. One notable case in Ontario involved a salesperson, Thomas Mason ("Tom"), who was fired by his employer. Tom had voluntarily signed a non-comp. When he sued for wrongful dismissal, the employer referred the court to an employment contract with the non-comp clause. The clause in question was very restrictive, a complete ban on competing with his employer. Tom was not an upper management employee. The Court found that for ordinary employees, a non-comp will not always be enforced. Also, the court gave guidance on the enforcibility when the contract is signed before the employment starts or during the employment. With non-comps signed before employment, they are more likely to be upheld, assuming the restrictions are reasonable (ie period of time and geographical area).
Non-solicitation clauses or agreements are more likely to be enforced because the employee is not being restricted from working in the same field. However, they still have to be fair and designed to protect the legitimate business interests of the employer. There are ways to get the word out to previous customers without breaching the non-solicitation clause or agreement. With both types of clauses or agreements, the key is that the restriction(s) should only be to the extent absolutely necessary to protect the employer's interests. Good legal advice is important in these situations.