Departing Employees Be Aware: Risks of Taking Clients from Former Employer

Nov 29, 2022

Workers may well know the recently passed Ontario legislation (Bill 27: Working for Workers Act, 2021) that generally prohibits non-compete clauses in employment agreements. However, this prohibition has exceptions, and the law does not forbid non-solicitation provisions. Departing employees may think twice before taking clients from their former employers.  

Exceptions to the Prohibition on Non-Compete Clauses

There are two exceptions to the prohibition of non-compete clauses:

  1. It does not apply to an employee who sold or leased the business to the employer, and immediately became an employee of the business after the sale or lease;
  2. The prohibition does not apply to an executive employee.

The non-compete clause may still be valid in either of the two exceptional situations. If valid, the clause will constrain departing employees from competing with the former employer within a reasonable period of time and geographic area. In addition to the two exceptions, a recent Court case ruled that Bill 27 does not interfere with non-compete agreements entered into before October 25, 2021. 

Non-Solicitation Clauses

Generally, a non-solicitation clause prohibits a departing employee from soliciting clients, customers, or other employees of the former employer.  Currently, the law does not forbid non-solicitation clauses in employment contracts. Even without a written contract, employees may still be prevented from soliciting their former clients or acting against their former employers. All employees have a duty of good faith and fidelity to their employers. This duty does not automatically end with the termination of an employment relationship. 

Departing employees face legal risks in taking former employers’ clients or confidential information to compete against the former employer.  Further, employees who had considerable control and responsibility at the former employer may be viewed as fiduciaries. The fiduciaries are under a very strict obligation to act only in the best interests of the former employer and not to compete unfairly, long after leaving. 

To better understand your workplace rights and obligations, we encourage employees and employers to seek legal advice. We at Whitten & Lublin are happy to provide insight and advice into your specific circumstances.  If you are looking for employment lawyers and would like more information on what Whitten & Lublin can do for you, please contact us online or by phone at (416) 640-2667 today.

Author: Luna Li


 

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