Non Compete Agreement | Non Compete Clauses (Part 3)

Sep 25

Non Compete Agreement | Non Compete Clauses (Part 3) – Too vague/unclear to be enforceable

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to drafting non-compete agreement, questions about their validity and enforceability, or resolving disputes about non-compete clauses, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Ontario independent contractor agreement lawyers registered on the website who can assess your business needs and help you draft, understand, negotiate, and resolve disputes involving non compete agreements and clauses – I should know, I’m one of them! If you want to speak with me directly, you can contact me at michael@dynamiclawyers.com.

As a follow up to my introductory blog about non-compete agreements, and the starting point in Ontario caselaw about non-compete agreements, I thought I would discuss in greater detail another way such clauses can be challenged: they are too vague and unclear.

Too Vague and Unclear
A great example of how a non-compete agreement/clause can be rendered unenforceable in Ontario because it is too vague and unclear is IT/NET Ottawa Inc. v. Berthiaume, [2002] 29 B.L.R. (3d) 261 (reversed on other grounds by the Court of Appeal in (2006) 13 B.L.R. (4th) 15 and leave to appeal refused by the Supreme Court of Canada (2006) 357 N.R. 395 (note), 225 O.A.C. 398 (note)).

In that case, the plaintiff (a management consulting firm) sued the defendant (a subcontractor hired by the plaintiff) for breach of a non-compete agreement, among other things. The defendant’s contract with the plaintiff said that he would not move to one of the defendant’s competitors. Here’s what it said:

4. NON-SOLICITATION & NON-COMPETITION: The [Defendant] agrees that during this Agreement period, and for a period of 12 months after its termination, that s/he will not, directly or indirectly, on anyone’s behalf (including, company, partnership, person or self):

4.1 offer or cause to be offered, or to recommend, the offering of employment or subcontract services, to any employee or Subcontractor of [the Plaintiff].

4.2 he/she will not attempt to solicit business from any IT/NET clients or prospects without the written consent of [the Plaintiff]. The intent of this clause is to reasonably protect the goodwill of [the Plaintiff] while at the same time not unduly limiting the ability of the [the Defendant] to continue in the practice of his/her profession.

The defendant left the plaintiff and was engaged by a competitor. When the plaintiff sued the defendant, the latter claimed (among other things) that the non-compete agreement was too vague and ambiguous.

Justice Aitken of the Ontario Superior Court of Justice agreed and found that the non-compete agreement, in part, was too vague and ambiguous to be enforceable. He wrote the following at paras. 96-101:

(c) Were the terms of the restrictive covenant clear, certain and not vague?

96 The Master Agreement is not an example of clear drafting. There are several concepts contained in the Master Agreement which are not adequately defined. As a result, the terms of the restrictive covenant, when considered in the framework of the Master Agreement and in the context of the consulting business, are ambiguous.

97 The non-solicitation and non-competition clauses are said to apply “during this Agreement period and for a period of 12 months after its termination”; however, the “Agreement period” is not defined in the Agreement and the ways in which the Agreement can be terminated are not clarified. The first clause states that “[The Plaintiff] engages the [Defendant] to provide services to [the Plaintiff] for an indefinite term, subject to the termination provisions in clause 3″. Clause 3 only discusses those situations where [the Plaintiff] can terminate the Agreement immediately upon notice to the subcontractor — and those situations simply mirror the circumstances where [the Plaintiff]‘s client terminates its arrangement with [the Plaintiff] or complains that the subcontractor is not performing his or her duties appropriately. The Agreement still contemplates other situations where either [the Plaintiff] or the subcontractor will terminate the Agreement, but those other situations are not described. Clause 6.2 refers to the non-solicitation and non-competition clause and the duty of confidentiality clause continuing in force notwithstanding the termination of the Agreement by either party or the reasons for that termination. So the first area in which the Master Agreement’s terms are ambiguous is in regard to how and when the Agreement is terminated. This means that the concept of “Agreement period” in clause 4 is unclear.

98 The second concept which is unclear is that of “employee or Subcontractor of [the Plaintiff]“, as used in clause 4.1. Clarification is required as to whether this refers to someone who was at any time in the past or will become at any time in the future an employee or subcontractor of [the Plaintiff] or whether it refers only to those individuals who were employees or subcontractors of [the Plaintiff] when [the Defendant] and [the Plaintiff] signed the Master Agreement. Does it simply refer to anyone who is an employee or subcontractor of [the Plaintiff] at the point in time that Berthiaume may want to offer work to that person or recommend that person for work?

99 The third concept which is unclear is that of [the Plaintiff]‘s “clients or prospects”. Does this refer to anyone who has been in the past or may be in the future a client or potential client of [the Plaintiff]? Does it refer to an organization or individual at the time [the Defendant] and [the Plaintiff] signed the Master Agreement to whom [the Plaintiff] was supplying services or to whom [the Plaintiff] was actively marketing in an effort to land a contract or to whom [the Plaintiff] had submitted a proposal? Does it refer to any organization or individual that would fit one or more of these descriptions at any point during the entire period of time in which the Master Agreement was binding on [the Defendant] and [the Plaintiff] plus 12 months thereafter. The statement in clause 4.2 that “The intent of this clause is to reasonably protect the goodwill of [the Plaintiff] while at the same time not unduly limiting the ability of the Subcontractor to continue in the practice of his/her profession”, although an appropriate statement of intention, does not go far enough to clarify the precise meaning of clause 4.2, and does not help to clarify the other concepts in clause 4.

100 The best evidence from the point of view of [the Defendant] tending to show that the wording of the non-solicitation and non-competition clauses in the Master Agreement was vague and ambiguous, was that of Brown. When he was pressed during cross-examination to describe the limits of the terms “clients” and “prospects”, he was unable to provide a clear answer. He was very clear that the term “client” included the government branch where the consultant was working and that the consultant was not free to have his services in regard to that position bid by another company at the end of [the Plaintiff]‘s contract with that government branch. However, he was unclear as to whether the consultant could have his services bid by another company in regard to another position at the government branch which may have come to his attention when he was an [the Plaintiff] consultant at that branch. He was also unclear as to whether the consultant was free to have his services bid through another company in regard to a position at another government branch where [the Plaintiff] was actively marketing and hoping to be invited to bid. Later he clarified that it was only if [the Plaintiff] were actively trying to place the consultant in another position would the consultant be prohibited from taking that position through another consulting firm. What Brown considered the meaning of the non-solicitation and non-competition clauses is of some interest in that he was the person who signed the Master Agreement on behalf of [the Plaintiff], and who answered any questions [the Defendant] had about the agreement before it was signed.

101 For reason of lack of clarity alone, the non-solicitation and non-competition clauses in the Master Agreement are unenforceable.

Note: this case may not be authoritative as of the date that you are reading them. You should not be relying upon this case in any way whatsoever! You are cautioned again to retain a lawyer (go to Dynamic Lawyer and make a post of your legal issue) to review your particular situation to determine the current status of the caselaw. We have Toronto, Ottawa, Hamilton, London, Mississauga, Brampton, and other Ontario lawyers registered who can review your contract (or help you draft one) and advise accordingly.

In case you’re a Client and looking to engage the services of an Independent Contractor in Ontario, look no further:

Independent Contractor Agreement (Client) – No Satement of Work

This Agreement can be used by a Client who wants to engage the services of an Independent Contractor (e.g. a consultant, a professional, a general worker, etc.) without creating an employment relationship. The “Client” means that this Independent Contractor Agreement favours the Client – for example, through notice, termination, standards of care, and restrictive covenants, etc. The “No Statement of Work” means that the services to be performed by the Independent Contractor are dealt with in the actual agreement and not in a Schedule (attached and incorporated into the agreement as a “Statement of Work”). There will be different versions of this agreement which favour both the Client and the Independent Contractor and which may include Schedules. Schedules aren’t absolutely necessary. They’re just one way of having an agreement instead of writing things out in the actual agreement, you simply modify the Schedule. Here’s the sample Video Guide that comes with this Independent Contractor Agreement (Client) – No Statement of Work:

Now, if you happen to be looking for an Independent Contractor | Consulting Agreement with a Statement of Work, then you’re in luck. Just go here and scroll down and, voila! The “Statement of Work” means that there is a schedule in this particular Independent Contractor Agreement to describe the services (instead of writing everything out in the actual agreement, it’s included in a Schedule). Here’s the sample Video Guide that comes with this Independent Contractor Agreement (Client) – With Statement of Work:

All of Dynamic Lawyers‘ legal forms are lawyer-prepared, simple to read, easy to customize, and only a fraction of the price a lawyer would charge. Also, each legal form comes with a FREE VIDEO GUIDE (watch a useful example of how this legal form can be customized), a FREE DL GUIDE (read helpful information about this legal form), and another FREE DL GUIDE that sheds valuable insight into how legal forms can be challenged. What are you waiting for? Best of all, if you DO need a lawyer and need some legal advice, simply make a post and get FREE quotes from Ontario lawyers focusing on the area of law you require!

Note: this information and these sample video guides are NOT legal advice and are provided for informational purposes only. If you need an Ontario lawyer, go to Dynamic Lawyers and make a post.