Non-Competition Clause vs. Non-Solicitation Clause: Key Things to Know

DISCLAIMER

This information is intended for business owners in Canada and serves as general guidance only. Always consult with a qualified advisor before making any legal decision. 

In this article, we’ll cover the following topics:

• What is a non-competition clause?

• What is a non-solicitation clause?

As a business owner, you’ll encounter non-competition and non-solicitation clauses in all manner of contractual documents: employment agreements, shareholders’ agreements, partnership agreements, and more. As such, it’s important to understand what they are and how they’re different from each other.

Non-Competition Clause

Often found in employment agreements, non-competition clauses prohibit a person from engaging in competitive behavior with the business for a set period of time. Under a non-competition clause, an employee who recently quit or was fired isn’t allowed to begin working immediately for a competitor; often they will need to wait several months, sometimes a full year, before they can do so without risking legal repercussions. 

Non-competition clauses can also extend geographically. For instance, under a non-competition clause, an employee may be prohibited from working in or near a certain city, i.e. within 15 kilometers of Vancouver, or within 15 kilometers of the company’s headquarters.

One important thing to keep in mind here is that non-competition clauses often are not strictly enforced. If an ex-employee has breached his or her non-competition clause and you decide to take them to court, it’s not a guaranteed win, as many judges believe that non-competition clauses prohibit ex-employees from participating in the economy. That’s not to say that non-competition clauses are completely powerless; it’s just good to remember that you shouldn’t put all your eggs in the non-competition clause basket. Which brings us to the next clause….

Non-Solicitation Clause

Compared to non-competition clauses, non-solicitation clauses are more reliable and easier to enforce. 

Non-solicitation clauses are similar to non-competitive clauses in the sense that they prohibit an ex-employee from engaging in certain competitive behavior for a set period of time. The key difference is that non-solicitation is defined more narrowly and restricts a smaller set of behaviors, and is more well-received by judges in courtrooms. 

Non-solicitation clauses don’t prohibit ex-employees from working directly with competitors (which, remember, courts tend to look unfavorably upon as this restricts the economic freedom of individuals); instead, they simply prohibit ex-employees from poaching their former employer’s clients, customers, employees, suppliers, and so on – a bit like saying “thou shall not steal.”

There’s a time and place for both clauses, and in some cases an aggressive non-competition clause is warrant. However, since non-solicitation clauses are more likely to be supported in a court of law, that option often works best for most business owners.

Want to learn more about non-competition and non-solicitation clauses? We’re here to guide you. Click here for an overview of our contact services, or get in touch using the form below.