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Ontario Court Enforces Non-Solicitation Clause!

By September 26, 2017July 9th, 2021Corporate, Employment Law

I’ve written a lot about the legality and enforceability of non-solicitation clauses.  Just take a look at this article I published HERE and these blogs I wrote HERE,.

So once in a while, we get a case where the court is asked to decide on whether a non-solicitation clause is valid and enforceable.  And we dental lawyers need to be on top of these cases because a lot of what we draft includes non-compete and non-solicitation clauses (purchase and sale agreements, associate agreement, staff contracts, etc.).

So in July of this year, the Ontario Superior Court of Justice released its decision in the case of MD PHYSICIAN SERVICES INC. et al. v. DUANE WISNIEWSKI et al. [2016], ONSC 2772. The facts of that case are as follows: 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.

Now, the individuals claimed that those terms were unenforceable because they were too vague, too unreasonable, and there was a lack of consideration (required to make a bargain) that was given to these individuals in exchange for including the non-solicit clauses.  Alternatively, these individuals claimed that they never breached the non-solicit because it was reasonable for them to notify clients of their new employment and that it was contrary to public policy to enforce these types of clauses anyways (so clients can have a more fully informed decision about the future direction of their investments).

The Ontario Superior Court of Justice didn’t buy it.  First off, Joy Sleeth had signed / acknowledged non-solicitation clauses as part of her employment with MDM over many years and promotions.  For his part, Duane Wisniewski had done the same.  So the court ruled out that these individuals didn’t know what they were signing and sufficient consideration (namely continued employment) had been given.

With respect to the use of non-solicit, the Court stated the following:

  1. The Oxford Dictionary defines solicit as “to ask for or try to obtain (something) from someone or seek to invite (business etc.)”.
  2. Non-solicits are less drastic forms of restriction than non-competes: see Lyons v. Multari [2000], 50 O.R. (3d) 526 (Ont. C.A.) and Staebler Co. v. Allan [2008] ONCA 576.

Then the Court moved on to the issue of whether the specific non-solicit clause was enforceable.  Did MDM have a proprietary interest entitled to protection?  Yes.  Because the individuals are paid based on a percentage of fees generated by that business, with no base salary.  The book of business hence became a capital asset for them.  But the client lists were provided to the individuals and created based on the efforts of MDM.  MDM should have its list protected because it has a genuine interest in ensuring that it is not used simply as an opportunity for financial planners to make contact with physician investors within the relatively protected environment of the firm and then attempt to utilize those contacts to take customers away from it.

Was the restrictive covenant reasonable in terms of the public interest?   Yes.  It was only for a 2 year time limit after the relationship ended.  It wasn’t a drastic non-compete clause.  And there were lots of other Ontario cases that enforced a 2 year non-solicit: Syntax Systems Ltd. v. Mid Range Computer Group Inc. [2003] O.J. No. 3684 (Ont. S.C.J.), Smilecorp Inc. v. Pesin [2012] O.J. No. 5734 (Ont. S.C.J.).  Based on this, the non-solicit was neither ambiguous nor unreasonable.

Was the restrictive covenant ambiguous with respect to length of time, geographic scope or scope of proscribed activities?  No.   The individuals were limited in who they could contact based on the terms of the agreement and the Oxford definition of “solicit”.  But they could still, for example, 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.

BOTTOM LINE:
In the employment law context, non-competes will only be enforceable in exceptional circumstances, but Courts have shown a continued willingness to enforce non-solicitation clauses that are used to protect an employer’s legitimate proprietary interests, are reasonable and clearly drafted, and are not too broad or vague.