Is your business currently in a growth phase?
Perhaps you’re trying to create as much transferable value as possible so you can one day exit.
Or maybe your company is established and you simply want some help running the business.
No matter what stage you’re at, you’re probably delegating some critical functions of your business to key employees.
This likely includes forging relationships and dealing directly with company customers and vendors.
But unless you have the appropriate restrictive covenants in place, there is nothing stopping your key salespeople from joining the competition – and taking all your clients with them.
Because non-competition clauses are typically not enforceable, the best way to protect the business you’ve worked so hard to build is to have your employees execute a carefully drafted non-solicitation covenant.
What is a non-solicitation covenant?
A non-solicitation agreement – or non-solicitation clause in an employment contract – restricts an employee from actively pursuing your clients, vendors, and/or employees both during employment and for a specified period after the employment relationship has ended.
Are non-solicitation agreements enforceable?
In Ontario, reasonable non-solicitation agreements are generally enforceable.
The court needs to balance your ability to reasonably protect your business from harm, while still allowing your employee to continue to earn a living in his or her chosen calling.
But to be enforceable, these clauses must be reasonable – not broad, ambiguous, or far-reaching. This means that the activity, time period, and geography prohibited in such restrictive covenants must be made clear.
Courts will not fix deficient or overreaching clauses, and the result is that employers who ask for too much end up with no protection at all.
Who should draft my non-solicitation agreement?
Non-solicitation agreements are not one size fits all.
A seasoned employment lawyer will fit these clauses to the circumstances and needs of your business so that they can be defended if necessary.
By narrowly and specifically defining such restrictions:
- They are more likely to be enforceable in court; and
- Your employees may be more receptive to them, realizing that your objective is to protect your business, not restrict their employment.
And it’s important to get this right the first time. As stated above, a court will not amend such an agreement after the fact to make it enforceable.
When should I put a non-solicitation agreement in place?
You should strive to protect your business before your employees come on board. Don’t try to sneak a non-solicitation clause in upon the employee’s dismissal.
On hiring, consider whether the employee could take your customers to a competitor. If so, protect your client relationships by having your employment lawyer draw up an employment contract that includes a properly drafted non-solicitation clause.
And if I don’t have a non-solicitation agreement in place or it’s unenforceable?
Then you would need your employment lawyer’s help in determining whether the employee is a fiduciary of the business. That is, whether he or she is a senior director, officer, or key employee that has a duty to put the company’s interest ahead of his or her own.
These employees may have a common law duty not to solicit customers for a reasonable period of time after termination of employment. If not, your employment lawyer can help you put a non-solicitation agreement in place so that it will be enforceable.
But even with such senior-level executives, you should put a non-solicitation agreement in place on hiring so they know what’s expected from them at the outset. It’s always more expensive to deal with finding solutions to problems that have already arisen, than it is to put preventative measures in place to avoid them in the first place.