Employee’s breach of non-solicitation provision proves costly
It is common for employers to include language in their staff contracts to help safeguard business interests. This may take the form of obligations to protect confidential information and/or refrain from soliciting staff, suppliers and/or clients after the employment relationship ends.
Previously, employers in Ontario would also use these contracts to restrict an individual’s ability to compete with their business following the expiry of their employment relationship. The Employment Standards Act, 2000, however, was updated to make non-competition requirements entered into after October 25, 2021 (subject to limited exclusions) unlawful.
It can be challenging for employers to enforce non-solicitation requirements. The courts review such provisions rigorously – requiring that the employer demonstrate the impugned language is reasonable – having regard for its scope (in terms of space and time) and the interests of the parties and the public. The courts will want proof that the restriction is needed to protect a legitimate business interest without unduly compromising a person’s ability to work in their chosen field.
Guidance from Alberta
Notwithstanding the inherent challenges associated with enforcement, employees should take restrictive covenants seriously and be mindful that failure to comply may prove costly.
In Catch Engineering Partnership v. Mai (2023 ABKB 279), the Alberta Court of King’s Bench considered whether a former employee had breached a non-solicitation obligation owed to his former employer.
The defendant worked for Catch for 11 months pursuant to a written employment agreement (from February 2019 to January 3, 2020). Prior to starting employment, Catch informed the defendant that he was being hired to perform services for a client with whom it had an existing relationship (CNRL).
The agreement required that the defendant protect Catch’s confidential information, and refrain from soliciting clients for a 12-month period following the end of employment. The relevant portion of the provision stated:
During the term of this Agreement and for a period of twelve (12) months from the effective date of termination of employment, either by the Employee or CEP [Catch], the Employee shall not:
a) intentionally act in any manner that is detrimental to the relations between CEP and CEP’s clients, suppliers, contractors, employees or others; and
b) Directly or indirectly contact or solicit any customers of CEP or any of its subsidiaries or affiliates with whom he or she has dealt during the twelve (12) months prior to his or her termination, for the purpose of inviting, encouraging or requesting any CEP customer to transfer from CEP to the Employee or the Employee’s new employer, or to otherwise discontinue its patronage and business relationship with CEP.
The facts
On December 17, 2019, the defendant informed Catch that he was resigning from his employment effective January 3, 2020. Later the same day, the defendant emailed CNRL to advise that he was leaving Catch but wanted to continue providing services to CNRL.
On December 18, 2019, Catch asked that the defendant reconsider his resignation. Catch further reminded the defendant of his non-solicitation obligation and asked whether he planned to continue providing services to CNRL. The defendant denied that he was contemplating doing so.
The court found this denial to be patently untrue.
On January 6, 2020, the defendant began new employment with a competitor business. In this role, he was assigned to CNRL to perform the same services as provided while with Catch. CNRL then terminated its contract with Catch.
Catch awarded damages
Catch commenced a lawsuit, seeking damages for breach of the non-solicitation agreement (along with breach of fiduciary duty and breach of the duty of good faith).
The Court ruled in favour of Catch, finding that:
the non-solicitation provision was reasonable and enforceable (being narrowly confined to protecting a legitimate business interest without interfering with the defendant’s ability to work within his chosen field);
the defendant breached the non-solicitation provision;
the defendant breached his duty of good faith by lying to Catch about his plans to continue working for CNRL; and
Catch was entitled to damages for lost profits totalling over $150,000 (for 2019 to 2022).
Lessons for employers
Depending on the nature of your business, it may be prudent to place contractual restrictions on individuals – both during and post-employment. While non-competition provisions are now generally impermissible (unless prescribed circumstances apply), the courts will uphold requirements to maintain confidentiality and refrain from soliciting clients.
Employers should work with experienced employment counsel to draft these provisions. It is critical restrictive covenants be fit for purpose – carefully protecting a legitimate business interest while allowing the affected individual to continue working within their chosen field. Among other things, employers should give thought to how best to define their “business” and how long a restriction is needed.
Finally, Catch is a good reminder to fulfil contractual obligations honestly and in good faith. There are few things a court dislikes more than a party who is found to have been dishonest.
This article was originally published on June 16, 2023 at First Reference Talks.
Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.
