Are you looking for help with restrictive covenants in Ontario? An employment contract can also include additional protections. For example, clauses such as restrictive covenants in favour of the employer include:

(1) non-compete clauses; and

(2) non-solicitation clauses.

Executives and other high-level employees are often in possession of important knowledge. This is information about the company such as trade secrets, business strategies, customer lists, and other important information.

The use of this information by a competitor would be prejudicial to the employer’s business interests. This is why an employer may want these restrictive covenants.

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Understanding Ontario’s Restrictive Covenants

The enforceability of non-compete and non-solicitation clauses changes when dealing with a fiduciary employee. Fiduciary employees are top management. This includes directors, officers, and other executive senior management officials.

However, the determination as to whether an employee is a “fiduciary employee” is very fact-specific. It is not limited to top management.  Lower-level managers with specialized knowledge can be included. If you have personal contact with large numbers of customers you may be a deemed fiduciary employee.

There is no absolute test to determine which employees are fiduciaries. Generally, fiduciaries tend to share 3 characteristics in common:

The fiduciary has the ability to exercise some discretion or power;

The fiduciary can unilaterally exercise that power or discretion so as to affect the employer’s legal or practical interests; and

The employer is specifically vulnerable to the fiduciary holding the discretion or power.

Employment Law In Ontario

Fiduciary employees have implied duties of loyalty. Further, they must show good faith. They must take part in the avoidance of a conflict of duty and self-interest with their employers.

Some of these duties survive upon a fiduciary’s resignation and departure. This is why non-compete and non-solicitation clauses are handled differently with departing fiduciaries.

Unless there is a contract to the contrary, a fiduciary has an implied duty not to solicit. This would be for a reasonable period of time after the employment relationship ends. This duty does not preclude a fiduciary from working with former employers’ clients. This happens when those clients are the ones making contact.

Demystifying Restrictive Covenants: A Must-Read for Ontario Homeowners

Despite duties at law, there is a chance that the employee is found not to be a fiduciary. Further, they might be found not to have breached a fiduciary duty.

A contractual non-compete/non-solicitation clause provides an added layer of protection for employers.

A non-compete clause is a clause in an employment contract which states that when the employee’s employment ceases, the employee agrees not to work for or start a business that is similar to the employer’s. Non-compete clauses frequently address:

(a) the amount of time an employee cannot compete against the employer; and

(b) the geographic boundaries within which an employee cannot compete.

Ontario Non-Compete Clauses

Non-compete clauses in Ontario employment contracts are held to very high scrutiny. They are often not enforceable. In order for a non-compete to be enforceable, it must be necessary.

This would be to protect the legitimate proprietary interest of the employer.  Even so, a non-competition clause is unlikely to be enforced. The necessary time and geographic extent of the clause must be carefully considered.

Time and space cannot be arbitrary. There must be some connection to a particular need of the employer. If there is an element of the non-compete clause that does not accord with the criteria, it might not be enforceable.

A judge will either strike the offending parts or strike the clause altogether.

Employment Law Court

Courts, however, have generally struck out the clause in its entirety. This happens where some portion is unreasonable. Sometimes a person is terminated. All s/he knows are the skills acquired from working under the previous employer.

Therefore, a non-compete clause will not preclude the employee from using his/her skills and general knowledge.

There are different considerations with respect to a non-compete clause. These can come up in the context of a sale of a business. The treatment of a non-compete clause may differ in the case of a fiduciary employee.

An employee should seek legal advice. Further, this would be to determine whether a particular non-compete clause will be enforceable.

Restrictive Covenants In Ontario

A non-solicitation clause will attempt to prohibit a departing employee from soliciting clients. Also, not to solicit other employees. These are valuable assets of their former employer. People solicit by persuading them to give business to or to work for the former employee.

Unlike non-compete clauses, non-solicitation clauses are more likely to be enforceable. However, like non-competes, non-solicitation clauses need to be carefully drafted. They should not be overly broad or ambiguous. The narrower the clause, the more likely the clause is to be enforced.

Crucial Insights into Restrictive Covenants for Ontario Properties

Regardless of the presence of a non-solicitation clause, removing client lists can be a problem. Using confidential client information can be a breach of an employee’s unwritten duty of good faith and fidelity.  These duties apply to all employees.

It is important to note that the prohibition is on the active action of solicitation. In many instances, when employees leave, their clients leave with them. This is not a violation of a non-solicitation clause.

There was no active or direct solicitation by the former employee. Once again, the obligations may differ in the case of a fiduciary employee.

Negotiation Tactics

Seek legal advice from an employment lawyer. Find out whether a proposed termination clause in an employment contract is even enforceable. Obviously, employees need to consider whether negotiating the termination clause will jeopardize the job offer.

In negotiations over the terms of an employment contract, an employee can use the proposed presence of restrictive covenants to leverage a lengthier notice period upon termination.

Mastering Restrictive Covenants in Ontario

The argument is that the employee should be compensated by the former employer. This would be for the period of time that the employee cannot compete or cannot solicit. It is also important to keep in mind that an employee is not giving up any rights.

The inclusion of an unenforceable non-competition clause is not helpful.

Do you need help with restrictive covenants in Ontario? You can reach out to us and we will connect you with one for a free consultation.

Read more articles to learn more about employment law.

Author: Alistair Vigier is the CEO of ClearWay Law