Canada: Non-Solicitation Without An Employment Contract

Last Updated: April 11 2018
Article by Jonathan M. Friedman

Employees are often required to execute employment contracts at the start of their employ. In some cases, these contracts contain "non-solicitation" clauses which seek to protect the employer's business should the employee no longer remain employed with the company. These "non-solicitation" clauses will generally prohibit an employee from soliciting and/or contacting the employer's customers and/or clients for a certain period of time after the employment relationship ends.

But what if the employee does not sign an employment contract? Are they prohibited from soliciting their former employer's customers and/or clients?

The short answer is it depends.

A former employee, absent a restrictive covenant such as a non-competition clause, or a fiduciary duty to his or her former employer, has a right to compete with his or her former employer and may bring to a new business the skills or knowledge acquired while in the service of the former employer (Laplante (c.o.b. Pascalina's Dance Studio) v. Hennessy-Craibe (c.o.b. Beat Central Dance Co.), [2011] O.J. No. 4298, paragraph 19, W.J. Christie & Co. v. Greer, [1981] M.J. No. 77, paragraph 17).

Therefore, an employee who is not a fiduciary of his/her employer and who doesn't sign an employment contract which contains a non-solicitation agreement is not prohibited legally from solicitation.

So what makes an employee a fiduciary?

An employee is not necessarily a fiduciary of his or her employer. Whether a fiduciary relationship exists depends on whether their relationship has the following characteristics;

  1. The fiduciary has scope for the exercise of some discretion of power;
  2. The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interests; and,
  3. The beneficiary is peculiarly vulnerable to the fiduciary holding the discretion or power.

FLS Transportation Services Inc. v Charger Logistics Inc., 2016 ONSC 3652 (CanLII), paragraph 51

In determining whether an individual is a fiduciary, the court is required to look at the nature of the relationship between the parties, the job function and the responsibilities being performed (FLS Transportation Services Inc. v Charger Logistics Inc., 2016 ONSC 3652 (CanLII), paragraph 52) and whether an employee is a fiduciary can therefore be fact specific and determined on a case by case basis.

However, unless an employee is found to be a key employee or director or when an employee is in effect "the whole show", a fiduciary duty preventing solicitation of former customers will not usually be found to exist (Atchison & Denman Court Reporting Services Inc. v. Neeson, [1999] O.J. No. 2652, paragraph 65).

A key employee is one who generally is responsible for guiding the business affairs of the employer, is involved in the decision-making process or is someone having access to confidential information that if disclosed could impair competitive advantage that the employer enjoys. (Laplante (c.o.b. Pascalina's Dance Studio) v. Hennessy-Craibe (c.o.b. Beat Central Dance Co.), [2011] O.J. No. 4298, paragraphs 18 and 21).

Because an employee is very important, a very productive and a lynchpin to an employer's success, does not mean that he/she was entrusted with or that he/she assumed knowingly or otherwise the duties of a fiduciary with the attendant duties of loyalty and unselfishness. (Optilinx Systems Inc. v. Fiberco Solutions Inc. et al. 123 O.R. (3d) 602, paragraph 33)

In Barton Insurance Brokers v. Irwin, supra, The British Columbia Court of Appeal rejected the argument that the defendant, whose job title was “general office supervisor”, was a “key employee” and thus barred from soliciting the clients of her former employer. The court noted that she was on salary, earning about $36,000 per annum, did not have the power to hire and fire, had never been a corporate officer, director or shareholder, and required approval from her superior for any significant expenditure. (Barton Insurance Brokers Ltd. v. Irwin, [1999] B.C.J. No. 220).

Now what if you are a fiduciary? What are your rights upon the "termination" of your employment relationship?

Upon his resignation and departure, a former employee who occupied a fiduciary position is entitled to accept business from former clients whom he or she does not directly solicit. (W.J. Christie & Co. v. Greer, [1981] M.J. No. 77, paragraph 17, Optilinx Systems Inc. v. Fiberco Solutions Inc. et al. 123 O.R. (3d) 602, paragraph 34).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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