How enforceable are non-competition clauses?
Court has said these provisions are rarely enforceable by law
More and more these days, employees are being asked to sign non-competition and non-solicitation clauses when they get a promotion, a new job or a raise. Employment lawyers like me get consulted often by people who are concerned about the effect that signing these provisions will have on their future if they ever leave the company.
Non-competition provisions are clauses that say for a certain period of time you will not work for a competitor in the same market.
The Ontario Court of Appeal said a long time ago that for mere employees these provisions are rarely enforceable. The courts will only prohibit you from working for a competitor in exceptional circumstances. I tell most employees that I give non-competition provisions only a five per cent chance of being enforceable.
One exception would be if you sold a business and continue working for it and received money for that sale or own a significant amount of shares in the company and are truly a key player. In those cases, a court will not assume that they are unenforceable and the entire situation will be considered by a judge.
Non-solicitation provisions are very different. A perfectly written one would prohibit you from contacting clients or potential clients with whom you dealt in the last 12 months of your employment for the purposes of selling a competitive product or service. Those would usually be enforceable and on their face, they are reasonable.
An employer who pays you to establish relationships with existing and new clients does not want to see you exploiting those relationships for the benefit of somebody else. The maximum a nonsolicitation clause should run for is a year. If it is longer the employer runs the risk of a judge striking the whole provision down for being too long and broad.
The idea is that the employer is given a breathing period in which they can have someone else establish new relationships with their clients and potential clients before you start knocking on the door.
If you have been in a particular industry for a number of years before getting a job offer with one of these non-solicitation clauses, you should think about negotiating exceptions.
If the reality is that you have been selling widgets to Acme Tool Company for 12 years through two other engagements, you already had that relationship before you started the new job. If you get fired three years from now you don’t want to have to stay away from a client with whom you have been dealing with for 15 years. You would simply have a sentence added that says, “This non-solicitation clause does not apply to Acme Tool Company.”
Many employers, notwithstanding that they are hiring you because they know you will bring Acme Tool Company with you, would love to have you sign a contract that if they fire you two weeks after you start they own the client.
I see too many non-solicitation provisions that say that the employee will not, for 12 months contact any client of the company or any potential client of the company for a year.
If you are the only sales rep and the only one who would have contacts with those clients and make all the sales pitches, such a provision makes sense. If you are one of 20 sales reps there is no way you could know all the customers that have placed an order or received a sales pitch.
On the rare occasion when a former employer has hired a lawyer to send a threatening letter to an employee trying to enforce one of these provisions, I have an effective response.
I write to them on behalf of the employee and ask for a list of all the customers and potential customers that they consider to be out of bounds and we will then consider our response.
Not surprisingly, that is the last time the employee usually ever hears from their old employer.
In a courtroom it is extremely unlikely any judge would enforce such a provision since it is effectively a non-competition agreement. It is trying to do through the back door what the courts will not let the employer do through the front door.
If you don’t know who all the clients are you can’t work in the industry, because every door you knock on could be a client of your old company. You can’t work in the industry. The courts will not support such a provision.
If you are faced with one of these clauses you should get legal advice.
Before you start battling with your employer it might be worthwhile to know that the non-competition provision would not likely be enforceable and therefore not worth the argument or your time .