B.A., LL.B., J.D., M.B.A.
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Non-Compete | Non-Solicitation Agreements in Ontario
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What are Restrictive Covenants?
are terms and conditions in an Agreement (such as an Employment, IndependentContractor, Shareholder, or Partnership Agreement) that limit one
party’s ability to do certain things. Typical
examples include restrictions on the use and disclosure of confidential information as well as non-competeand non-solicitation clauses. The idea behind restrictive covenants is that a party which is privy to another
party’s sensitive information or clients
should be prevented from simply leaving the relationship andcompeting with the other party with all those benefits.
What are Non-Compete and Non-Solicitation Clauses?
in an agreement
puts limits on one party’s
ability to compete in the same businessas the other party. In other words, during the term of the agreement and for a period of time thereafter andwithin a set geographic area, one party cannot establish their own business or work for others such that theysell the same products or services as did their current or former client, employer, partner, etc. A
clause in an agreement means that one party will not solicit (attempt or actually sell) customersor employees of the current or previous employer, client, or partner. This is a less drastic restrictive covenantthan a Non-Compete clause. While this DL Guide focuses on Non-Compete and Non-Solicitation clauses inthe employment context, they can also be found in business agreements (e.g. partnership agreement,shareholder agreement, independent contractor agreement, share or asset purchase agreement, etc.).
Are they valid and enforceable?
Since restrictive covenants are contractual, the principles of contract law apply to their validity,interpretation, and enforceability. In Ontario, this means that the provision in an Agreement must be
enough (i.e. not too vague or missing information) to be enforceable. Th
ere’s an age
-old rule of interpretation called contra-proferentum which states that, in the case of an ambiguity, the provision should
be interpreted against the party who wrote it. Ouch! Don’t use wishy
washy language, such as ―may‖; usedefinitive language such as ―must‖ or ―shall‖. Finally, don’
t provide alternatives in the restrictive clauseitself
for example ―the non compete clause may last 1, 2, or 3 years‖; this will make it unenforceable for