Non-solicitation agreements

Validity of agreement if customer contacts former employee

Brian Johnston
Question: A former employee signed a contract saying she won’t take a client of her former employer, but what if the client calls the former employee? Is she allowed to take the client’s business? If the former employee tells the client the name of her new company and how to find her, is that considered solicitation?

Answer: If the client calls the former employee, she can likely take the client’s business. If the former employee tells the client the name of her new company and how to find her and the former client calls, she cannot “take the client’s business.” That would be solicitation.

Restrictive covenants are reluctantly enforced by courts. Historically, they were considered contracts in restraint of trade, generally contrary to public policy and therefore void. However, courts are willing to balance the community interest to maintain freedom of trade versus an individual’s interest to contract reasonable limitations with reference to the public interest.

Of course, the effectiveness of a restrictive covenant depends largely on that to which the parties have agreed. A former employee’s commitment that she will not “take” a client of her former employer suggests prohibiting some form of solicitation. If the employee moves and the client tracks her down and calls the former employee, such would likely not be considered “taking” a client. However, if the former employee tells the client the name of her new company and how to find her, that solicitation, if it resulted in the client calling the former employee, would likely violate the restrictive covenant.

An employee’s failure to honour a valid restrictive covenant can have a genuine financial effect on both the employee and the employer. In a recent Ontario case, H.L. Staebler Co. v. Allan, the court upheld a restrictive covenant that had been breached by two former employees who had resigned without notice and immediately — and very successfully — began to solicit and secure the business of their former clients. The employer was successful in obtaining an injunction against the former employees as they had signed written contracts that prevented them from conducting business with any customers of their former employer for two years. The court ordered the employees to pay damages to the employer, amounting to nearly two million dollars — equal to 1.5 times the commission earned by the new employer from the clients who transferred their business as a result of the breach of the restrictive covenant.

Both employers and employees need to ensure restrictive covenants are carefully drafted to ensure they are enforceable and otherwise achieve the objectives sought by the parties.

For more information see:

H.L. Staebler Co. v. Allan, 2007 CarswellOnt 5792 (Ont. S.C.J.).

Brian Johnston is a partner with Stewart McKelvey Stirling Scales in Halifax. He can be reached at (902) 420-3374 or bjohnston@smss.com.

Latest stories