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dimanche 20 novembre 2011

Non-solicitation clauses are worth the trouble

by Karim Renno
Irving Mitchell Kalichman LLP

Under Quebec law, employers who wish to protect their business interests generally have at their disposal three types of restrictive clauses that can be included in agreements with their employees: non-competition, non-solicitation and confidentiality clauses.

Which of these clauses businesses choose to include is often a matter of negotiation and employee leverage, but these clauses maximize business protection when used together.

While non-competition and confidentiality clauses are well known and much discussed, non-solicitation clauses have traditionally been viewed, erroneously in my opinion, as “non-competition clauses light” and are used less frequently in employment contracts.

There are strengths and weaknesses in non-solicitation clauses. They are not always easy to enforce, but are ultimately worth the trouble.

What is a non-solicitation clause?

It is a contractual restriction that prohibits an employee, during his employment and for a reasonable period of time thereafter, from soliciting clients, employees or suppliers of his employer or ex-employer. A non-competition clause forbids the ex-employee from carrying on business in the same field as his ex-employer.

Many businesspeople and lawyers conclude that the non-solicitation clause is an inferior form of protection because it does not prohibit the employee from competing with his former employer. However, an in-depth analysis of recent Quebec court decisions indicates that position is questionable.

Non-competition clauses are subject to stringent requirements under the Civil Code of Quebec. In order to be valid, such clauses must be restricted in duration, territory and activity to what is necessary for the protection of the legitimate business interests of the employer. Quebec courts have not been as rigid in applying non-solicitation clauses precisely because they do not stop the ex-employee from working in any field he chooses.

While non-solicitation clauses must also be limited in time to be valid, their accepted duration is substantially longer. Non-competition clauses in employment agreements that are longer than one year are at risk of being judged excessive and anything over two years is almost automatically struck down. But for non-solicitation clauses, courts have accepted durations of up to three or four years.

For example, in the L.E.L. Marketing case, Quebec's Superior Court upheld the validity of a non-solicitation clause with a duration of three years, while expressly stating that such a duration would have been excessive for a non-competition clause.

Secondly, and more importantly, unlike non-competition clauses, non-solicitation clauses do not have to be limited in territory.

Indeed, as was confirmed by the Superior Court in the recent case of Gagnon vs. St-Pierre (presently on appeal), no territory need be specified for the clause to be upheld. So while an ex-employee can escape the restriction of a non-competition clause by establishing his competing business outside the prohibited territory outlined in the employment contract, no such strategy can be used to sidestep a non-solicitation clause.

While I take issue with the characterization of non-solicitation clauses as the weak little sisters of non-competition clauses, that is not to say that I consider them more effective.

The weakness of non-solicitation clauses comes at the enforcement stage, because courts have interpreted the concept of solicitation very restrictively. To be prohibited, the solicitation must be active, targeted and insistent.

Hence, the presence of a non-solicitation clause will not, for example, prohibit an ex-employee from advertising broadly or announcing his departure for a competing business to his clients. More importantly, it will not prohibit him from working with his former employer’s clients if they came to him (or her) independently. Proving targeted and insistent solicitation before the court is difficult, and almost always involves putting clients in the middle of a legal dispute, which no business owner likes to do. In contrast, the enforcement of a non-competition clause only requires the demonstration that the ex-employee is involved in a competing business within the prohibited territory and time period.

That is why I almost always recommend, for a company to maximize the effectiveness of the protection of its business interests, include both non-competition and non-solicitation clauses in employment agreements. Their different and complementary strengths act as powerful deterrents to employees and ex-employees alike to engage in disloyal activities.

Neutral reference: [2011] CRL Extra 1

The present text was initially published on the legal matters page of the Montreal Gazette (http://www.montrealgazette.com/business/legal-matters/index.html). The opinions expressed therein are those of the author and do not necessarily reflect the views of the YBAM, the CRL or the team of this Blog.


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