Non-Solicitation and Non-Competition Breaches
Public policy favours free competition in the marketplace, but this doesn’t mean that a business can’t protect its economic interests. Many commercial and employment contracts contain restrictive covenants that prevent others from soliciting from or competing with a business. Certain people also have implied legal obligations under contracts to not solicit or compete with a business. Non-solicitation and non-compete terms, provisions, and/or agreements provide businesses with more certainty that no party can easily hurt their economic interests as part of their contractual relationship.
Breaches of non-solicitation and non-compete terms can result in significant damages to a business. They could lose employees, customers, suppliers, and their overall competitive edge.
Our litigation lawyers assist in litigating breaches of restrictive covenants like non-solicitation and non-competes. You will be involved throughout the process from negotiation to litigation, to achieve your desired result and protect your business interests.
What is a Non-Solicitation?
A non-solicit prevents another party from stealing a business’ existing clients, potential customers, employees, or suppliers. Non-solicitation must be for a reasonable duration of time to be enforceable against another party.
A non-solicit can apply during the contractual relationship and for some fixed time afterward. In many cases, the extended duration beyond the contract’s end must be in writing. Some parties in positions of significant trust will have an implied obligation to not solicit from a business in specific circumstances.
What is a Non-Compete?
A non-compete prevents a party from competing within a specific industry or line of business within a geographic area for a specific time. The geographic scope, time, and other conditions of a non-compete must be reasonable to be enforceable against another party.
The enforceability of a non-compete is a complex analysis that will depend largely on the facts of a given situation. In most cases, a non-compete must be in writing to be enforceable during or after a contractual relationship. Like non-solicits, there are fact-based scenarios where a non-compete might be implied in a contractual relationship.
The courts and the law treat non-competes differently depending on who the contracting parties are. A business-to-business transaction or shareholder agreement isn’t the same as an employer requiring their employee to enter into a non-compete as part of their employment contract.
Illegal Non-Competes
Non-competes entered into between employers and employees on or after October 25, 2021, are generally illegal and unenforceable under the Ontario Employment Standards Act, 2000.
However, there are exceptions to this new rule, including the following scenarios:
- A sale or lease of a business or part of a business where:
- It was operated as a sole proprietor or partnership;
- The seller becomes an employee of the purchaser immediately following the sale; and
- As part of the sale, the purchaser enters into a non-compete with the seller.
- Where the employee is an executive, such as a CEO, President, or any other chief executive position.
All non-competes entered into with employees before October 25, 2021, or for the exceptions outlined above after October 25, 2021, are subject to the established law regarding the reasonability and enforceability of non-competes.
The ESA restrictions for non-competes do not apply with respect to other restrictive covenants with employees such as non-solicits or non-disclosure agreements that prevent the release or use of a company’s confidential information.
Breaches of Non-Solicit and Non-Compete: What Actions Can a Business Take?
If your business is suffering economic losses or other damages because someone is soliciting your clients or setting up a competing business after working with you, our litigation lawyers are here to help.
It is important to provide whoever is breaching a non-solicitor non-compete notice of their breach with a cease and desist. If your business suffered damages from unlawful solicitation or competition, you should demand compensation and negotiate with the other party. This is typically done through a demand letter.
If the other party does not stop soliciting or competing and refuses to negotiate, the only option left is to sue for damages your business incurred and potentially other remedies. A common remedy for breach of a non-solicitor non-compete is an injunction – a court order restraining a party from continuing with its harmful misconduct.
Commonly, cases move through the litigation process with pleadings, a mediation to attempt settlement of the case, examinations for discovery, a pre-trial conference, and then trial.
The courts do not enforce overly broad non-solicit or non-competes that are for too long a period or too wide a geographic scope. However, each case depends on its unique facts. It is important to hire a lawyer to both draft non-solicit and non-competes and advocate to enforce them.
Our litigation lawyers understand the importance of protecting your business interests and maintaining your competitive advantage. We will help you navigate the commercial dispute process and achieve the results you need with cost-efficient and effective advocacy.
Contact Us
If you want to clarify your business’ rights or want to pursue legal action regarding solicitation or competition with your business, our commercial litigation lawyers would be glad to help you. Contact us at 1-800-771-7882, or email [email protected], and we would be happy to assist.
