Northern Exposure

Canadian Employers Need to be Careful with Nonsolicitation Clauses

By Clayton Jones and Derek Knoechel

The common wisdom is that Canadian courts are much more willing to enforce nonsolicitation clauses in employment contracts than noncompetition clauses. While this may often be the case, nonsolicitation clauses will still be closely scrutinized by the courts.

Two recent cases from British Columbia emphasize the danger for employers that don’t ensure the restriction contained in a nonsolicitation clause is no wider than reasonably required to protect its legitimate business interests.

Two recent cases
In Phoenix Restorations Ltd. v. Brownlee, 2010 BCSC 1749, Phoenix Restorations sought a court order against its former employee Paul Brownlee. He had gone to work for a competitor. Phoenix wanted a court order to stop him from soliciting their customers.

Phoenix specialized in commercial and residential restorations arising from fire, vandalism, and other types of damage. At the time that Brownlee resigned, about 80 percent of his work was for two major clients: Crosby and Assertive. They accounted for about 30 percent of Phoenix’s business.

There was evidence that after resigning Brownlee had taken steps to solicit business from Crosby and Assertive by delivering doughnuts, coffee, and hockey tickets. The key issue was whether the nonsolicitation clause in his employment agreement was enforceable. The clause said Brownlee wouldn’t “. . . solicit, divert or hire, or attempt to solicit, divert or hire, to the Competitive Entity, any individual or entity, which was an actual or actively sought prospective client or customer of the Company.”

The court took issue with the fact that the nonsolicitation clause covered all clients or customers of Phoenix and not just those with whom Brownlee had dealt. As a result, it was broader than necessary to protect Phoenix’s legitimate proprietary interests. The court observed that if the nonsolicitation clause had been restricted to customers with whom Brownlee dealt, there would likely have been a strong case in favor of its enforcement.

While the court acknowledged that Phoenix could possibly win at the ultimate trial, it wasn’t prepared to grant an interim order against Brownlee, based on what it viewed as unnecessarily broad language.

In another case, F&G Delivery Ltd. v. MacKenzie, 2010 BCSC 195, F&G Delivery sought an injunction against its former employee Robbie MacKenzie. F&G was in the business of delivering freight and equipment in British Columbia. A large portion of its work was in crane servicing. MacKenzie had been employed by F&G as a sales representative. After resigning his employment, MacKenzie was hired by T-Lane, which also was involved in crane servicing.

One of the issues before the court was whether contract clauses that restricted MacKenzie from soliciting F&G’s potential clients or customers and former employees were reasonable and, thus, enforceable. The court was of the view that the restrictions were much broader than necessary to protect any legitimate interest of F&G. It noted there was no evidence that F&G had a proprietary interest in either its potential customers or its former employees.

Key lessons for employers
Both noncompetition and nonsolicitation clauses are considered to be “restraints of trade.” They won’t be enforced unless the employer can demonstrate that the restriction is reasonable and necessary to protect its legitimate business interests. The above cases illustrate that loose language is just as likely to sink a nonsolicitation clause as a noncompetition clause.

Recent decisions have confirmed that courts won’t rewrite an overbroad restrictive covenant. As a result, it’s essential that employers “get it right” when including any post-employment restriction in an employment contract, even if “only” a nonsolicitation clause.

It’s critical that any restriction be tailored to the employee’s duties and the actual exposure that this creates for the employer. When considering the scope of a restriction, employers also should think about how they might defend it in court. How will you establish the actual proprietary interest that you seek to protect? How will you establish that this interest is jeopardized by the restricted activity? Is there a less onerous restriction that can protect your interests? How will you establish that the restriction you chose is necessary and that a less onerous restriction is insufficient?

Any court being asked to rule on the enforceability of a restrictive covenant will be asking the same types of questions. By considering the answers to these questions before inserting a post-employment restriction into an employee’s contract, you increase the likelihood that it will ultimately be enforced.