Confidentiality | Non Disclosure Agreement

This is the full and FREE DL Guide that comes with every purchase of a Confidentiality and Non-Disclosure Agreement on Dynamic Lawyers:

When you purchase an Ontario Non-Disclosure and Confidentiality Agreement from Dynamic Lawyers, you get a lawyer-prepared and customizable legal form, a VIDEO TUTORIAL showing you how to customize the legal form, the DL GUIDE (above), plus another DL GUDE (entitled “Is My Legal Form Valid and Enforceable?”) – all for a very low price of just $47 plus taxes! It would cost you thousands of dollars for a lawyer to prepare all of these things for you from scratch! So what are you waiting for? Get your package today!

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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 Non-Compete or Non-Solicitation clauses, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you.  If you’re looking for Non-Compete and Non-Solicitation clauses within an employment or independent contractor agreement, then check out our legal forms + video guides.

So this if the first of many blog posts about non-compete and non-solicitation clauses.  Yes, I’ve previously blogged about this topic (e.g. here, here, and here).  So here, I’ll be talking about these clauses from the perspective of an employer or human resources manager.  If you’re either one of these, you absolutely need to check out our employment agreements or independent contractor agreements.

First thing’s first: do I actually need one?
Whether you need to restrict or limit an employee’s ability to do something (e.g. compete with the business, solicit clients from the business, solicit employees from the business) really depends on whether you have something worth protecting.  Do you have a legitimate interest in protecting a business idea?  If you have provided confidential information to an employee, clearly you want them signing a confidentiality agreement as part of their employment (if they are an employee) or engagement (if they are an independent contractor).  If an employee or independent contractor had access to client lists, trade secrets, pricing policies, formula, or technology that is proprietary, the last thing you want is for them to set up shop across the street or share it with anyone else.  So there has to be some type of harm or damage which could result from this employee or independent contractor doing something to you.  If there is a reasonable prospect of such harm occurring, then having a non-compete or non-solicitation agreement or clause within an agreement makes sense.

Difference between Non-Compete and Non-Solicitation Agreement
OK, so assuming you need a non-compete or non-solicit, the next question to ask is: what’s the difference? And will one of them suffice? A non-compete clause in an employment agreement or an independent contractor agreement puts limits on the person’s ability to establish their own business or work for others so as to compete with their previous employer or client.  This is a much more drastic step than a non-solicit clause.  The latter, when included in an employment agreement or an independent contractor agreement, means that the person will not solicit customers or employees of the previous employer or client.  Now, why not have both, you ask?  Well, there are a few reasons…

First, having both may dissuade a prospective employee or independent contractor from signing on from the get go.  They may feel that, if anything goes wrong and they leave, they will be unemployable.  Related to this is the morale factor: a new employee or independent contractor may feel bad because, right away, they’re threatened with sanctions if things don’t work out and they try to do something akin to what they’ll be doing for the employer.  Ouch!  Finally, having non-compete and non-solicit clauses may actually INCREASE the amount of notice (or payment in lieu thereof) an employee is entitled to at common law if the matter gets litigated: courts may increase the normal amount of notice or payment in lieu thereof because it would take the employee longer to find suitable work with the existence of non-competes and non-solicit clauses.

So, assuming you as an employer still want to have a non-compete and/or non-solicitation clause just for the sake of having them, the next question becomes: do you need both or will one suffice?

Non-Compete vs. Non-Solicit in Employment Context
Interestingly, the case of Lyons v. Multari (2000) 3 C.C.E.L. (3d) 34 becomes relevant here.  This is a leading case by the Ontario Court of Appeal concerning an employee dentist who was sued for allegedly breaching a non-compete clause in an employment contract.  The issue before the court was whether that restrictive covenant was enforceable.  The facts of that case are straightforward.  One dentist was a principal of the business (i.e. the employer).  Another dentist was an associate (i.e. employee).  The two dentists signed a short-hand note that limited the associate’s ability to practice dentistry if he chose to leave.  The entire non-compete clause said: “Protective Covenant.  3 yrs. – 5 mi.”  After 17 months of working, the associate dentist left and opened up his practice – which competed with his employer’s business and was 3.7 miles away.  The employer sued for breach of contract.  The Ontario Court of Appeal disagreed, holding that the non-compete clause was unenforceable.

So how did the Court of Appeal end up there?  Well, it started off by saying that all restrictive covenants go against public policy (free trade, etc.) and are therefore VOID.  The only exception to this general rule is if the restraint is reasonable in the interests of the parties and also reasonable in the public interest. So there are a few factors which a court should consider to answer these questions: (1) whether the employer has a proprietary interest entitled to protection, (2) whether the temporal or spatial features of the clause are too broad, and (3) whether the covenant is unenforceable as being against competition generally, and not limited to proscribing solicitation of clients of the former employee.

So with this test and factors in hand, the Ontario Court of Appeal held the following:

• The employer had NO proprietary interest in other dentists who referred clients (so those referring dentists were up for grabs);
• The employer benefited from the relationship with the employee;
• The role played by the employee was not special; and
• A non-solicitation clause would have sufficed (a non-compete clause was too drastic).

So based on all of these things, the Court of Appeal concluded:

48 For all of these reasons, I conclude that Dr. Lyons’ non-competition clause is unenforceable. His legitimate interest in protecting his own referring dentists and patients could have been protected by a non-solicitation clause. An established professional person or firm — be it in the field of dentistry, medicine, engineering, architecture, law or other professions — will constantly seek to recruit entry level associates to the practice. Such recruitment is good for the established person or firm and for the young associate.

So what does that tell prospective employers and employees?  Well, basically, you can put whatever you want in an employment agreement (for show), but at the end of the day it may not be enforceable.  Asking too much and not being reasonable may defeat your restrictive covenant.  In the case above, the Court of Appeal held that a non-solicitation clause would have sufficed because a non-compete was too harsh.  Only in exceptional cases will non-compete clauses be upheld; that case was not an exceptional one.

Exceptional cases for non-competes?
So what constitutes an exceptional case for a non-compete clause, you ask?  Well, although the court in the above case didn’t get into it, there was a case in Manitoba which did try to answer that question.  In Winnipeg Livestock Sales Ltd. v. Plewman [2001] 1 W.W.R. 153, the Manitoba Court of Appeal reviewed the various Canadian authorities on the issue of “exceptional cases” and held that the following factors were relevant:

In summary, the authorities reveal that the following circumstances will generally be relevant in determining whether a case is an “exceptional” one so that a general non-competition clause will be found to be reasonable:

1. The length of service with the employer.
2. The amount of personal service to clients.
3. Whether the employee dealt with clients exclusively, or on a sustained or recurring basis.
4. Whether the knowledge about the client which the employee gained was of a confidential nature, or involved an intimate knowledge of the client’s particular needs, preferences or idiosyncrasies.
5. Whether the nature of the employee’s work meant that the employee had influence over clients in the sense that the clients relied upon the employee’s advice, or trusted the employee.
6. If competition by the employee has already occurred, whether there is evidence that clients have switched their custom to him, especially without direct solicitation.
7. The nature of the business with respect to whether personal knowledge of the clients’ confidential matters is required.
8. The nature of the business with respect to the strength of customer loyalty, how clients are “won” and kept, and whether the clientele is a recurring one.
9. The community involved and whether there were clientele yet to be exploited by anyone.

So any employer or HR manager should think long and hard about these factors if they’re concerned about the validity and enforceability of a general non-compete clause…

Now onto the next blog about non-competes and non-solicitation clauses and agreements…

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I wanted to give you an update on our Ontario legal forms project.  Our February Launch is still a go. All 10 legal forms are now complete and are being tweaked.  Each form takes a number of days to draft, review and revise.  Not only that, but we’re including videos and ebooks with each package to help provide some insight into the form itself and how you can customize it.  So you’ll end up being able to download a fully customizable template (e.g. in .doc, .wpd., and .rtf format).  Here are a list of our initial packages (all for Ontario):

1. Independent Contractor Agreement (One-Sided: Client)
2. Plaintiff’s Claim: Construction / Renovation Dispute
3. Confidentiality Agreement (One-Sided)
4. Confidentiality Agreement (Mutual)
5. Settlement and Release Agreement (One-Sided)
6. Settlement and Release Agreement (Mutual)
7. Auto-Accident Settlement and Release Agreement (One-Sided)
8. Continuing Power of Attorney for Property
9. Power of Attorney for Personal Care
10. Living Will

(One-Sided): means that the clauses are drafted in favour of one of the parties.

(Mutual): means that the clauses are drafted in favour of both parties.

A big benefit of these legal forms is that they are lawyer prepared but written in a language you can understand: HUMAN.  We’ve stripped out the legalese and simplified each document so that you can understand it.  Together with the eBook and the Video, you should be all set.

As time goes on, we will be adding additional legal forms to the mix in the areas of:

• Family Law (e.g. Cohabitation Agreement)
• Will and Estates (e.g. Last Will and Testament)
• Real Estate (e.g. Residential Lease Agreement)
• Websites (e.g. Terms of Use Agreement)
• etc.

Once things take off, we’ll also be adding additional jurisdictions….

So there you have it…

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Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only.  If you believe you require assistance in reviewing, drafting, negotiating, etc. a Confidentiality and Non-Disclosure Agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  You can contact me directly as well.

As a follow up to one of my first blogs ever on Confidentiality Agreements, I thought I should add a few thoughts seeing as how I’m currently drafting a Confidentiality and Non-Disclosure Agreement as part of Dynamic Lawyers’s new legal forms project.

First, there’s basically two kinds of confidentiality agreements: one-sided and mutual.   The one-sided confidentiality agreements are basically in favour of the discloser and at the expense of the recipient.  This type of agreement makes sense in certain situations (e.g. the discloser is providing the recipient with proprietary information that is not in the public realm).  But there are also mutual types.  These allow for both parties to share and be equally responsible for the use and protection of the confidential information they provide each other.  This type of agreement is used when parties are examining each other for the purpose of doing a transaction, merging, or engaging in a joint venture (for example).

Moving on, there’s a whole bunch of things that typically go into a confidentiality agreement, namely:

• Background information
• Definition of confidential information
• Definition of what is NOT confidential information
• Term
• Termination
• Who owns the confidential information
• Obligations of recipient of confidential information
• Compelled disclosure
• What happens in case the confidential information is lost or inappropriately disclosed
• Return or destruction of confidential information
• Remedies (e.g. injunctive relief)
• General terms (there are a lot of them, which I won’t get into here)
• Etc.

You may think that entering into a confidentiality and non disclosure agreement is a simple matter, but there are many issues that you need to be aware of.  For example, do you want to put stringent timelines on the requirement for the recipient to return or destroy confidential information, or should they be held to a “prompt” or “in due course” standard.  Language is everything here!

Be sure to have a lawyer draft or review your confidentiality agreement as it may contain things you didn’t expect like: non-compete or non-solicitation clauses!

In case you’re looking for an Ontario Mutual or One-Sided Confidentiality Agreement, then look no further:

Confidentiality and Non-Disclosure Agreement (Mutual)

This Agreement can be used to restrict both parties’ use and disclosure of confidential information that is being provided to it. If only ONE party is sharing confidential information and want to restrict the other’s use and disclosure of that information, then you can purchase a ONE-SIDED Confidentiality and Non-Disclosure Agreement:

Confidentiality and Non-Disclosure Agreement (One-Sided)

Here’s the sample Video Guide that comes with the Confidentiality and Non-Disclosure Agreement (Mutual):

Here’s the sample Video Guide that comes with the Confidentiality and Non-Disclosure Agreement (One-Sided):

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!

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