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Non-Solicitation Update: Are These Clauses Legal / Enforceable?

By May 19, 2020June 30th, 2021Employment Law

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!

In MD Physician Services Inc. v. Wisniewski, 2017 CarswellOnt 11447, MD Management Limited and a bunch of other companies owned by it (“MDM“) offered products and services primarily to Canadian physicians.  We have 2 individuals, Duane Wisniewski and Joy Sleeth, who were employees of MDM until they left in 2013 to join a competitor firm, RBC Dominion Securities.  MDM alleged that these individuals breached the non-solicitation terms of their employment contracts.  At trial, the Ontario Superior Court of Justice held that the non-solicitation terms WERE enforceable because: (1) MDM had a proprietary interest worthy of protection (book of business, its employees being paid based solely on a commission, etc.); (2) the restrictions were limited (2 year time limit after the relationship ended) and not a drastic like a non-compete could have been; and (3) the individuals could freely solicit clients of MDM whom they had not serviced and anyone else, including physicians, who had never been a client of MDM whom they had served as an investment advisor or had encouraged to become an investor with MDM.
Now, importantly, the geographic restriction which was included in the non-solicit agreement appeared to be unhelpful: the non-solicit said that the individuals were not to solicit “within the geographic area within which s/he provided services to the employer”.  Well, this is pretty vague and without precision.  So would the court throw out the whole non-solicitation clause on this basis?  NO.  Instead the court held that the geographic description neither adds to nor detracts from the non-solicitation provision.  The reason being that the individuals could have serviced or solicited clients of MDM from wherever they were (financial advice can and is provided over both long and short distances).  The geographic restriction was so trivial and not part of the main purports of the restrictive covenant that it was simply severed and did not form part of the Court’s assessment as to whether the non-solicitation agreement is enforceable!
For these reasons, the Court found that the individuals had breached the non-solicitation clauses and RBC Dominion Securities was vicariously liable because it instructed them to contact former clients and coached them on how to do it.  Costs were to be decided at a later point.  And the Ontario Court of Appeal sided with the trial judge (2018 CarswellOnt 7102) and the Supreme Court of Canada refused to hear the case.

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”.

2015 Alberta Case: No Written Agreement + No Fiduciary Relationship = Non Solicit Does NOT Apply!

The case of Szojka v. Pewter Financial Ltd., 2015 ABQB 708 is somewhat similar to the BC case discussed above.  In this case, we have a mutual fund salesperson with no governing contract to deal with the issue of non-solicitation.  The Alberta Court of Queen’s Bench held that, based on the facts of that case, without a contract saying otherwise and because there was no fiduciary relationship between Laszlo Szojka and Pewter Financial, he was free to solicit clients.  Like the BC case discussed above, sophisticated parties chose NOT to deal with the issue of non-solicitation in any paperwork and, by leaving it to a judge to decide based on the particular facts of the case, the judge decided to rule in favour of the mutual fund salesperson.

Bottom Line

As I’ve stated before, make sure you HAVE properly drafted non-solicitation clauses with your employees and associates and also with the dentist you’re doing business with (either as part of a purchase and sale transaction or a shareholder/partnership arrangement).  We’re here to help.