Non-Solicitation Clauses
Non-solicitation clauses are legal provisions in employment agreements that restrict employees or independent contractors from contacting former customers, clients, and/or colleagues of their employer. The purpose of these clauses is to protect an employer from having their customers or business contacts poached by a current or former employee. Non-solicitation clauses are usually included as part of the non-compete clause in a contract, though they can also be used alone. The scope and length of these clauses vary depending on the nature of the agreement.
Purpose and benefits of having a non-solicitation clause
The purpose and benefits of having a non-solicitation clause are to protect an employer from their customers or business contacts being poached by current or former employees. These clauses can also be used to protect the employer’s confidential or proprietary information, trade secrets, and goodwill. Non-solicitation clauses are usually enforceable for a certain period of time and within certain geographic areas, thus allowing employers to safeguard their assets effectively. Additionally, such clauses may limit a former employee’s access to existing customers, helping the employer retain its customer base.
Legal Definition of Non-Solicitation Clause in Ontario
Definition of non-solicitation under Ontario law
Under Ontario law, a non-solicitation clause is defined as a legally binding provision in an employment agreement that restricts employees or independent contractors from contacting former customers, clients, and/or colleagues of their employer. These clauses are intended to prevent the poaching of customers or business contacts and protect the employer’s confidential information, trade secrets, and goodwill. A non-solicitation clause typically lasts for a certain period of time and may be limited to certain geographic areas.
Difference between non-compete and non-solicitation clause
Although similar in nature, a non-compete clause and a non-solicitation clause differ in terms of legal application. A non-compete clause seeks to prevent an employee from entering into or starting a competing business for the duration of their term of employment. On the other hand, a non-solicitation clause is intended to restrict an employee from poaching customers or business contacts from their former employer. A non-solicitation clause typically remains in effect after the termination of employment whereas a non-compete clause generally ends upon the employee’s termination.
What is prohibited under the clause?
A non-solicitation clause typically prohibits an employee or independent contractor from engaging in activities such as: contacting former customers, clients, or colleagues of their employer for the purpose of offering them goods or services; using the employer’s confidential information and trade secrets; interfering with the employer’s business relationships; and inducing employees to terminate their employment.
Types of Non-Solicitation Clauses in Employment Agreements
Fixed duration & irrevocable terms.
Non-solicitation clauses typically have fixed durations, meaning they remain in effect for a specific period of time. They are also usually irrevocable, meaning they cannot be revoked or changed except by mutual agreement between the parties involved.
Financial consideration & performance bonds.
Non-solicitation clauses also typically require the employee to pay a certain amount of financial consideration (e.g., a penalty fee) in the event that they breach their non-solicitation agreement. Performance bonds may also be required, which is money held by the employer and paid out to them should any breaches occur.
Advantages and Disadvantages of Non-Solicitation Clauses for Employers and Employees
Advantages for employers
Non-solicitation clauses provide employers with a certain level of protection for their business. By establishing contractual terms and conditions, these clauses can reduce the risk of an employee taking business contacts, confidential information, and other assets outside of the organization. Additionally, having such clauses in place can help to dissuade employees from breaching their non-solicitation agreements in the first place, as there are tangible financial penalties that come along with any breach.
Disadvantages for employers
As with any legal arrangement, non-solicitation clauses pose certain risks to employers in terms of the enforceability and cost associated with them. For example, if an employer chooses to try and enforce a non-solicitation clause in a dispute over a breach of contract, they may find that this can become very costly and time-consuming. Additionally, depending on the state or jurisdiction involved, non-solicitation agreements may be judged as too restrictive or unenforceable. This could lead to hefty financial penalties for the employer if they are found to be in violation of labour laws.
Advantages for employees
For employees, non-solicitation clauses can help to protect their rights and interests. By being aware of any non-solicitation agreement that is in place during their employment, employees can be sure to abide by them and not find themselves in violation of any contract terms. In some cases, non-solicitation clauses may even provide employees with a certain degree of job security, as they can reduce the risk of losing business contacts or confidential information if they leave the organization. Additionally, these clauses may also prevent employers from using an employee’s knowledge and expertise after they have left the company.
Disadvantages for Employees
For employees, the main disadvantage of non-solicitation clauses is that they can limit their freedom to find alternative employment or pursue business opportunities after leaving their current job. These clauses may also restrict an employee’s ability to work with clients and contacts they have built over the course of their employment. Additionally, depending on the terms and conditions of a non-solicitation clause, some employees may even be prevented from competing with their former employer.
