So I’ve previously written about whether non-solicit clauses are legal and enforceable. See my blogs HERE, HERE, HERE, HERE and HERE. I also published this article in Ontario Dentist magazine about non-solicitation clauses back in 2013.
These clauses (which essentially restrict a dentist from soliciting patients, team members and referral sources) are often found in associate agreements, purchase/sale agreements, shareholder/partnership agreements, etc.). Some of these clauses are very basic and some go into extreme detail covering what constitutes “solicitation” like communicating with past patients of the practice or even advertising in traditional media or online ads.
So here’s a quick update to reflect some more recent court cases that have come out to address the issue of whether non-solicitation clauses are legal/enforceable:
2018 Ontario Court of Appeal Case: Written Agreement = Non-Solicit Does Apply!
2019 BC Case: No Written Agreement + No Fiduciary Relationship = Non Solicit Does NOT Apply!
In the case of Capital Direct Lending Corp. (Plaintiff) and Sophia Blanchette (Defendant), 2019 CarswellBC 1906, the B.C. Supreme Court found that a mortgage broker (Sophia) with no governing contract did not breach any non-solicit obligation. First, the Court found that applying restrictions on Sophia not to solicit former clients would negatively impact her ability to earn a living. Second, the Court found that Sophia was not a fiduciary because of her specific position (not a GM or broker of record), not being identified on marketing materials, not being subject to restrictive covenants, not supervising any employees, having no access to confidential information, not the first point of contact with any clients, no power to make referrals without management approval, etc. Third, when Sophia did reach out to clients, she asked them if it would be OK for her to send them an email with her new contact info; the Court found that this wasn’t necessarily solicitation because it gave clients the option to decide where to go when they next needed mortgage broker services (i.e. with Sophia or with Capital Direct). In other words: her phone calls were informative, assuring and professional. For these reasons the Court dismissed the case against Sophia and ordered costs against Capital Direct.
2016 BC Case: Written Agreement = Non-Solicit Does NOT Apply!
In the case of 2909731 Canada Inc. v. Toews, 2016 CarswellBC 1307, the BC Supreme Court found that a non-solicitation clause in a contract was so poorly drafted that it couldn’t possibly be enforced. Here, 2 former employees of a company that sells promotional products mainly to the automative industry were sued to stop them from operating their own competing company and soliciting past customers for a period of 24 months after they left. The 2 employees had signed an agreement with their former company (2909731) that said: ” . . Any employee having worked for the company and having access to all confidential data (client base, suppliers, pricing structure, marketing strategies etc.) shall not seek employment or work in a similar field for a competitive entity (other company) for a period of twelve months from date of termination with PG.” The Court scrutinized this clause and held that (1) it’s too ambiguous (what does “similar field” mean? does it mean “comparable” to that of 2909731 and if so does it restrict the employees from selling to industries that 2909731 never sold to or intends to sell to?), (2) 2909731 did not have a proprietary interest that was entitled to protection (there was nothing about its business that was unique or special; it just had a list of 8,000 names / contact information out of the 20,000 automobile dealerships in North America); (3) there was no spatial or geographic limits; and (4) it’s not limited to prohibiting solicitations of 2909731’s customers – it’s all encompassing! And much like the Courts have found in the past, these harsh type of non-compete clauses are only enforceable in “exceptional circumstances” – which don’t exist here. In the end, the Court ruled that “the restrictive covenant is unreasonable and is therefore, unenforceable”.