Non solicitation and non-competition covenants - making them enforceable

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Presented by Andy Pushalik at the Dentons Fall Employment and Labour Law Update - October 9, 2013.

Agenda includes:
-Legal Protections Even Without a Written Agreement
-Pre-Drafting Considerations
-The Four Commandments of Drafting Restrictive Covenants
-How to Make Your Restrictive Covenants Enforceable

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Non solicitation and non-competition covenants - making them enforceable

  1. 1. Dentons Canada LLP Fall Employment and Labour Law Update Seminar
  2. 2. Non-solicitation and noncompetition covenants: Making them enforceable Andy Pushalik 9 October 2013
  3. 3. Agenda • Legal Protections Even Without a Written Agreement • Pre-Drafting Considerations • The Four Commandments of Drafting Restrictive Covenants • How to Make Your Restrictive Covenants Enforceable 9 October 2013 Dentons Canada LLP 3
  4. 4. Legal protections even without a written agreement • The Ordinary Employee • General duty of good faith and fidelity • Employees cannot compete against their employer during the employment relationship • Confidential Information 9 October 2013 Dentons Canada LLP 4
  5. 5. Legal protections even without a written agreement • Fiduciary Employees • Confidential Information • Non-Solicitation of employees • Non-Solicitation of clients • Seizing a corporate opportunity • Riding the coat-tails of the fiduciary 9 October 2013 Dentons Canada LLP 5
  6. 6. Pre-drafting considerations • Do you need a non-competition or non-solicitation covenant? • When to enter into a non-competition or non-solicitation agreement 9 October 2013 Dentons Canada LLP 6
  7. 7. The four commandments of drafting restrictive covenants • The clause must be reasonable • The clause must not go further than necessary • The clause must protect a legitimate proprietary interest • The clause must be clear 9 October 2013 Dentons Canada LLP 7
  8. 8. Commandment #1: The clause must be reasonable • “…the word one finds repeated throughout the cases is the word „reasonable‟” • J.G. Collins Insurance Agencies v. Elsley, [1978] 2 S.C.R. 916 • Geographic Scope • Non-Competition Covenants vs. Non-Solicitation Covenants • Temporal Scope • Business Scope 9 October 2013 Dentons Canada LLP 8
  9. 9. Commandment #2: The clause must not go further than necessary • What do you need to protect? • Nature of the business to be protected • Where do you actually do business? • Sale of Business vs. Employment Context • Guay inc. v. Payette, 2013 SCC 45 9 October 2013 Dentons Canada LLP 9
  10. 10. Commandment #3: The clause must protect a legitimate proprietary interest • No property in potential customers • Client relationships • Client preferences 9 October 2013 Dentons Canada LLP 10
  11. 11. Commandment #4: The clause must be clear • Clear Definitions • “Business” • “Activities” • “No Deal Clauses” • “Blue-Pencil” and Notional Severance • KRG Insurance Brokers (Western) Inc. v. Shafron, 2009 SCC 6 9 October 2013 Dentons Canada LLP 11
  12. 12. Enforceable or not? “Adam Paton agrees that in event of the termination of this agreement by either party and after the term hereof has expired that he will not engage in tattooing for gain nor will he be a proprietor of, nor employee, servant or contractor of any person or corporation engaged in the operation of a tattooing business within a 200 mile (320 km) radius of the City of Yorkton for a period of 3 years commencing the final date at Drillers Tattoos.” 9 October 2013 Dentons Canada LLP 12
  13. 13. Enforceable or not? “The Employee shall not, without the prior written consent of the Employer directly or indirectly, solicit […], any person, firm, company, entity or other party soliciting, serving or catering to any of the customers of the Employer or its affiliates who dealt with Employee during the term of his employment, if such soliciting, serving or catering to is in any way directly or indirectly related to the business of the Employer or its affiliates while the Employee is in the employ of the Employer and for a period of two (2) years from the date that the Employee ceases to be employed by the Employer or its affiliates in and throughout the territory of Canada and the United States of America.” 9 October 2013 Dentons Canada LLP 13
  14. 14. Enforceable or not? “I agree that if my employment is terminated for any reason by me or by the Company, I will not, for a period of one year following the termination, directly or indirectly, for my own account or as an employee or agent of any business entity, engage in any business or activity in competition with the Company by providing services or products to, or soliciting business from, any business entity which was a customer of the Company during the period in which I was an employee of the Company, or take any action that will cause the termination of the business relationship between the Company and any customer, or solicit for employment any person employed by the Company.” 9 October 2013 Dentons Canada LLP 14
  15. 15. Making your covenant enforceable • Set out the reasons for the non-competition/non-solicitation covenant • Don‟t speculate – “businesses which may compete”; “potential customers” • Define Terms • Business • Solicitation 9 October 2013 Dentons Canada LLP 15
  16. 16. Making your covenant enforceable • Narrow the scope • Clients that the employee dealt with during the last two years of his employment • The shorter the better • Pay the employee during the non-competition or non-solicitation period 9 October 2013 Dentons Canada LLP 16
  17. 17. Thank you Andy Pushalik Dentons Canada LLP andy.pushalik@dentons.com +1 416 862 3468 © 2013 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Please see dentons.com for Legal Notices. Dentons Canada LLP

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