Non-Solicitation and Non-Competition Agreements and Breaches
Non-solicitation agreements and non-compete agreements, also referred to as “restrictive covenants,” are designed to protect your business by restricting the behaviour and actions of departing employees.
You would typically include these restrictive covenants in employment agreements or, alternatively, in a separate agreement that an employee will sign before commencing work. They may also form part of purchase agreements, where a party has purchased all or part of a business and the vendor of the business is bound by these restrictive covenants, as described below.
Non-Solicitation Agreements
A non-solicitation agreement’s objective is to prevent former employees or owners from soliciting your clients, suppliers, or other parties relevant to your business. Generally, non-solicitation agreements are easier to enforce that non-compete agreements. A non-solicitation agreement is more likely to be considered reasonable, and therefore enforceable, if:
- It is temporally limited;
- It is reasonable in the geographic scope it covers;
- It is written clearly; and
- It aligns with public interest and does not unduly restrict competition.
If an employee breaches an enforceable non-solicitation agreement, their employer is entitled to sue them for damages. When assessing damages, the actual business losses caused by the former employee’s breach will determine the damages.
Non-Competition Agreements
Non-competition agreements between employers and their employees are banned in Ontario, subject to the following exceptions:
- The owner sold or leased their business to a new employer, but was immediately made an employee of the business; or
- The employee is an executive of the business.
Absent one of these exceptions, an employer cannot enforce a non-competition agreement on a current or former employee.
As with a non-solicitation agreement, if a former employee breaches an enforceable non-competition agreement, you can sue for damages based on your actual losses.
Hum Law Firm has experience dealing with non-solicitation and non-compete agreements and breaches, both in the employment and business context. We are here to assist protect your business.