Non-Competition and Non-Solicitation Lawyers

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Loyalty, Non-Competition, and Non-Solicitation

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In the professional world, loyalty and non-competition are highly regarded attributes in employees. Employers, in return for the salary and work conditions they provide, expect their employees to demonstrate loyalty. This means avoiding actions like speaking negatively about the company to family, friends, colleagues, and particularly clients. Loyalty involves prioritizing the company’s interests, avoiding conflicts of interests such as working for a competitor, and safeguarding confidential information acquired during employment. This quality is so integral to the employee-employer company relationship that it is legally mandated. According to the Civil Code of Quebec, and as established in caselaw for federally regulated employes in Canada, there is a legal duty of loyalty owed by employees to their employers.

Moreover, to safeguard their interests, employers may require employees to agree to non-competition and non-solicitation clauses. These clauses are effective during the term of employment and for a specified period after the employment relationship ends, ensuring the protection of the company’s business interests.

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The duty of loyalty: an important duty of the employee, the violation of which can lead to dismissal without reasonable notice.

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Whether or not there is a written employment contract, the employee must not only be competent and act with care and diligence in the performance of their work but must also be loyal and honest, as stated in Article 2088 of the Civil Code of Quebec:

- Civil Code of Quebec, Article 2088

« 2088. The employee is bound not only to perform his work with prudence and diligence, but also to act faithfully and honestly and not use any confidential information he obtains in the performance or in the course of his work.

These obligations continue for a reasonable time after the contract terminates and permanently where the information concerns the reputation and privacy of others. » (Our emphasis).

For example, a representative of a property and casualty insurance brokerage firm cannot appropriate the list of clients obtained in the course of their work to compete with their employer by soliciting and acquiring the clientele for their own business after office hours. Likewise, an employee must be honest, both at the time of hiring and during the employment relationship with their employer. Therefore, the employee cannot make a false statement at the time of hiring, such as misrepresenting their work experience or previous jobs, or even declaring to their employer that they worked all day when they left at noon without clocking out to engage in activities other than work.

The duty of loyalty also means that the employee must not publicly harm the company's reputation. Therefore, it is advisable for employees to be careful about what they post on social media such as Facebook. An employee of a private company cannot publicly denounce a company practice under their right to freedom of expression provided by the Charter of Human Rights and Freedoms because every right of the employee must be balanced with the employer's right to have an honest and loyal employee who acts in the best interests of the company.

Another manifestation of the duty of loyalty in the workplace is the obligation of the salaried worker not to place themselves in a conflict-of-interest situation. For example, in the banking industry, it is sufficient for the employee to be in a conflict-of-interest situation and for there to be a real risk of harm to the bank for the employee to be dismissed for breaching their duty of loyalty. In the decision of the Federal Court of Appeal Canadian Imperial Bank of Commerce v. Boisvert, the decision of an arbitrator's grievance was overturned, and it was considered that a bank employee who cohabited with a bank robber created a conflict of interest situation justifying dismissal, even though the bank had not suffered any theft by the bank robber in question. Attached is a more recent decision of the Federal Court reaffirming the reasoning of this landmark decision in employer-employee conflict of interest matters: https://canlii.ca/t/1j312

In such situations, the dismissed employee is not without defense. The burden of proving a breach of the duty of loyalty, and more specifically, the existence of a conflict of interest, falls on the employer. The employer must obtain evidence legally and respecting the worker's right to privacy as provided by the Charter of Human Rights and Freedoms.

Interestingly, the duty of loyalty of the employee is so important that it continues even after the end of employment. Indeed, taking another look at Article 2088 of the Civil Code of Quebec, we see that the obligation of loyalty and the obligation to respect confidential information survive for a reasonable period after the termination of employment and always survive when the information pertains to the reputation and private life of others:

- Civil Code of Quebec, Article 2088

« 2088. The employee is bound not only to perform his work with prudence and diligence, but also to act faithfully and honestly and not use any confidential information he obtains in the performance or in the course of his work.

These obligations continue for a reasonable time after the contract terminates and permanently where the information concerns the reputation and privacy of others. » (Our emphasis).

Recruiters and headhunters often advise candidates never to speak ill of their former bosses and employers. However, this is not only good advice for candidates in interviews but also a legal obligation to be followed, under penalty of exposure to claims for damages. It is therefore not advisable for an employee to share their grievances about their former employer on Facebook, no matter how unpleasant the experience was. As for the duty of loyalty and not competing, this duty only persists for a reasonable duration. Small and medium-sized enterprises (SMEs) would be well advised to consult a labor and employment lawyer to prepare a non-competition and non-solicitation clause drafted in compliance with the law and constantly evolving caselaw.

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Non-Competition and Non-Solicitation

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The obligation for an employee not to compete with their employer and not to solicit the company's clientele is self-evident during the employment relationship. However, it becomes a different matter when the employment contract has ended. The underlying principle is that an employee has the fundamental right to earn a living after dismissal, termination, resignation, or mutual termination of employment. This is why employers have an interest in having their employees sign a good and valid non-competition and non-solicitation clause.

- Civil Code of Quebec, Article 2089

« 2089. The parties may stipulate in writing and in express terms that, even after the termination of the contract, the employee may neither compete with his employer nor participate in any capacity whatsoever in an enterprise which would compete with him.

However, the stipulation shall be limited as to time, place, and type of employment, to what is necessary for the protection of the legitimate interests of the employer.

The burden of proof that the stipulation is valid is on the employer. »

While it is almost common knowledge that a non-competition and non-solicitation clause has its limits and cannot prevent an employee from earning a living indefinitely in a competing company, it is still worth highlighting the three (3) elements to assess with a non-competition clause lawyer.

In addition to being readable and understandable, like any other clause in the contract, the non-competition clause must be limited based on the following three (3) criteria:

1) Territorial Limitation: Within what territory does the clause prevent the employee from working for a competing company after the termination of the employment contract? The Montreal Island? Longueuil? Brossard? Laval? The Greater Montreal Metropolitan Area, including the South Shore and the North Shore? Each case is unique, and it must be reasonable and only what is necessary to protect the legitimate interests of the company.

2) Limitation as to the Type and/or Field of Work: Within a given territory, it must be determined for what type of work, industry, or profession the employee will be limited. For example, an employee may well work for a competing company if their new job is entirely different and unrelated to their previous job. Could a computer technician from an information technology (IT) company be prevented from working for a competing company as a photographer? This kind of debate can take place despite the signing of a non-competition clause.

3) Time Limitation: The duration of the obligation not to compete or otherwise solicit the company's clients after the termination of the employment contract must be reasonable. What is reasonable for the courts will depend on the nature of the job, the industry, and other factors directly affecting the protection of the company's legitimate interests. For example, it can be expected that the duration of a non-competition clause will be longer for a key computer programmer in IT, an IT genius, than for a nurse working for a placement agency. As of the present text, it is generally recognized that a non-competition clause cannot last more than two (2) years.

No non-competition and non-solicitation clause are immune to the power of the court to invalidate it entirely. This is indeed an interesting feature of the non-competition and non-solicitation clause: if any of the three (3) limitations is deemed unreasonable and too broad in relation to what is strictly necessary to protect the legitimate interests of the company, the entire clause falls, and the employee is free to compete with their former employer. Hence the importance for companies to entrust the drafting of such documents to lawyers familiar with non-competition and non-solicitation clauses.