NON-COMPETITION AGREEMENTS

A non-competition agreement is a legal contract between parties that prohibits an individual or entity from engaging in certain business activities on their own or indirectly through another entity. Non-competition agreements may specify a term length for the agreement or restrict its scope to a certain geographic area. For a non-competition agreement to be enforceable, it must be clear in its scope,[1] it must be as narrow as possible, it must not unnecessarily restrict competition within an economy, and it must not be against the best interest of the public.[2] Failure to comply with the above may result in the non-competition covenants being set aside.

After October 25th, 2021, in Ontario, employers are prohibited from entering into non-competition agreements with employees, subject to certain exceptions outlined in the Employment Standards Act. Instances of when a non-competition agreement may be enforceable include when a business is sold and the seller becomes an employee of the buyer and as part of the sale, the seller agrees not to engage in any work that is in competition with the business that was sold.[3] Non-competition agreements may also be enforceable between an employer and an employee if the employee is an executive officer of the business.[4] If you have entered into a non-competition agreement and are not sure if it is enforceable, it is recommended to consult with an experienced employment lawyer or business lawyer to review the agreement and provide legal advice accordingly.

NON-SOLICITATION AGREEMENTS

A non-solicitation agreement is a legal contract between parties that prohibits an individual or entity from soliciting clients, vendors, suppliers, or employees from another individual or entity. Non-solicitation agreements are common covenants in contracts where an individual or entity will gain access to sensitive information such as client and supplier lists. For example, an employer may request the employee enter into a non-solicitation agreement whereby the employee agrees not to approach the clients of the employer for a specified period of time after the termination of the employment agreement. To be enforceable, the non-solicitation agreement must be clear in its scope,[5] the terms and time length of the restrictive covenant must be reasonable, and it must not go against public policy.[6] In Ontario, courts are less reluctant to invalidate a non-solicitation agreement when compared to non-competition agreements. If you have entered into an employment agreement or commercial contract that includes a non-solicitation agreement, it is recommended to consult with an experienced employment or business lawyer to review the agreement and provide you with legal advice accordingly.

If you are looking to enter into a non-solicitation agreement or non-competition agreement, contact us today to set up an initial consultation.

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1. KRG Insurance Brokers (Western) Inc v Shafron, [2009] 1 SCR 157, 301 DLR (4th) 522, 2009 CarswellBC 79.
2. JG Collins Insurance Agencies Ltd v Elsley, [1978] 2 SCR 916, 83 DLR (3d) 1, 1978 CarswellOnt 1235 at para 13.
3. Employment Standards Act, 2000, SO 2000, c. 41, s. 67.2(3)
4. Employment Standards Act, 2000, SO 2000, c. 41, s. 67.2(4).
5. KRG Insurance Brokers (Western) Inc v Shafron, [2009] 1 SCR 157, 301 DLR (4th) 522, 2009 CarswellBC 79
6. JG Collins Insurance Agencies Ltd v Elsley, [1978] 2 SCR 916, 83 DLR (3d) 1, 1978 CarswellOnt 1235 at para 13.

Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.

About the Author:

Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.