How Binding Is A Non-solicitation Clause?

• Published date: 22 February 2022
• Subject Matter: orporate/Commercial Law, Anti-trust/Competition Law, Corporate and Company Law, Antitrust, EU Competition
• Law Firm: Siskinds LLP
• Author: Mr Michael Weinberger

Non-competition clauses are restrictive covenants that courts often deem unenforceable. But what about non-solicitation clauses? Are non-solicitation clauses strictly controlled?

What is a non-solicitation clause vs. a non-competition clause?

A non-solicitation clause restricts an employee, from soliciting customers, clients, staff, accounts, or vendors during their employment, and for a specified period of time when they depart the business. Non-competition clauses restrict an individual from competing directly with the business, during and after their departure, including working for a competitor or starting their own business.

The seminal Supreme Court of Canada case Elsley Estate v JG Collins¹ indicated that non-solicitation clauses often suffice in protecting an employer's proprietary interest whereas non-competition clauses go too far. Since Elsley Estate, Ontario courts have been consistent in upholding reasonable non-solicitation clauses because they are more likely to represent a balance of competing interests over a non-competition clause.²

How to ensure a non-solicitation clause is reasonable

For a Court to find a non-solicitation clause is valid and enforceable, the Elsley Estate reasonableness principles apply. This means three factors are considered:

1. Did the employer have a proprietary interest entitled to protection? In other words, did the employer have a reason to actually protect something?
2. Were the temporal or spatial features of the clause too broad Did the clause cover too much time, or too large of a geographical area?
3. Is the covenant unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employer?³ So, is the covenant's scope too broad in the sense that it covers more than just non-solicitation?

Often, the reasonableness analysis turns on the suitability of the temporal and spatial (i.e. time and geographic) terms of the clause. The temporal length concerns the duration for which the individual is restricted from solicitation. This determination largely depends on the industry norm and can range from a couple of months to, on rare occasions, several years. The average appears to be up to two years for industries that are not particularly specialized, but the shorter the duration, the more likely it will be found to be reasonable.

A geographical limitation is not relevant or required where the non-solicitation clause is limited to customers or clients of the...