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 in Ontario, 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. You can contact me directly if you need a business lawyer.

Yes, I know.  I’ve already written TONS of blog posts about non-solicitation and non-compete clauses and agreements.  But, every now and then I come across something new that I want to add that I hope you will benefit from.  So let’s recap where we’re at, shall we?

• If you are an EMPLOYER and you are hiring an employee, you can find non-solicitation and non-compete clauses in our Employment Agreement.
• If you are a CLIENT (a business) and are engaging the services of an independent contractor (instead of an employee), you can also find non-solicitation and non-compete clauses in our Independent Contractor Agreement.
• If you are an EMPLOYER and you are terminating an Employee, you can find non-solicitation and non-compete clauses in our Employee Termination Agreement.
• If you are a CLIENT (a business) and want to do business with another party, you can find a non-solicitation agreement here and a non-compete agreement here.

So you see: there are many different ways in which non-compete and non-solicitation clauses and agreements can pop up.  Each situation is different.  Anyways, that’s our starting point.  So once you have the proper agreement, the next step will be to customize it for your particular circumstances.  For this process, you should be familiar with the various issues and nuances that come into play.  For example, what have courts said about non-compete agreements in the employment or business context?  What about non-solicitation agreements? How can they be challenged?  How can you prevent against future challenges?  This is where a lawyer’s guidance comes into play.  And I’ll be sharing some of that insight right here in my blog.  But if you want to see the big picture, you should purchase the appropriate package and read the full DL Guide that comes with the legal form.

So without further adieu, lets start talking nuts and bolts, shall we?

Why do we need Non-Compete and Non-Solicitation Agreements?
Employers and businesses have secrets.  They don’t want their competitors to know.  Also, they don’t want to create new competitors by allowing employees or business partners to simply come in, learn all the tricks, and then leave and set up shop next door.  So that’s where restrictive covenants come in like non-competes and non-solicitation clauses and agreements.

Non-Competes
The idea for a non-compete is easy: one party is prevented from competing in the same or similar business as another party.  The term is important: you can’t require a non-compete to last forever.  It’s unreasonable and in restraint of free trade.  So the time limit can run, for example, during the course of the relationship and for a set period of time at the expiration or termination of that relationship (e.g. 6 months, 2 years, 5 years, etc.).  There will also be limitations on geographic scope: is it in a City, Province, Country, or within a set distance (e.g. 25 km) from a certain location?   What is reasonable with respect to term and geography will depend on the circumstances of each case.

Non-Solicitations
Non-solicitation agreements are less restrictive / harsh than non-competes.  If you only have a non-solicit, you can set up shop and compete with a former employer or business partner, but you cannot solicit their customers or employees.   In Lyons v. Meltari , [2002], O.. No. 3462 (Ontario Court of Appeal) (which I’ve previously blogged about here), the Ontario Court of Appeal found that a non-compete clause was too onerous and (as such unenforceable)  and that a non-solicitation clause would have sufficed in those particular circumstances.

But in Elsey v. J.G. Collins Insurance Agencies Ltd. (discussed below), the Supreme Court of Canada upheld a broad non-compete clause on the basis of the facts before it.  Importantly, the court said that a simple non-solicitation clause would NOT have sufficed.

Elsey v. J.G. Collins Insurance Agencies Ltd.
In this case,the Supreme Court was faced with the issue of whether an insurance agent had violated a non-compete clause in an employment contract with his former employee.  The clause provided that the employee would not directly or indirectly engage in the business of a general insurance agent within the defined area for a period of 5 years after any termination of his employment as manager.  The employee worked a number of years for the employer.  During that time, he dealt with customers, gained knowledge of the insurable assets, financial credit, likes and dislikes and idiosyncrasies of each customer, in a recurring and confidential relationship.  Then, one day, the employee left and started his own general insurance agency.  He took 3 employees with him.  He advertised and his former employer’s clients left to become his clients.

When the case reached the Supreme Court, the judges had an opportunity to speak about the nature of restrictive covenants and non-competes generally.   Here are a few things which the court observed about restrictive covenants:

1. A covenant in restraint of trade is enforceable only if it is reasonable between the parties and with reference to the public interest.
2. As in many of the cases which come before the courts, competing demands must be weighed.
3. On the one hand, there is an important public interest in discouraging restraints on trade and maintaining free and open competition unencumbered by the fetters of restrictive covenants.
4. On the other hand, the courts have been disinclined to restrict the right to contract, particularly when that right has been exercised by knowledgeable persons of equal bargaining power.
5. In assessing the opposing interests, the word one finds repeated throughout the cases is the word “reasonable”.
6. The test of reasonableness can be applied, however, only in the peculiar circumstances of the particular case.
7. The validity of a restrictive covenant can be determined only upon an overall assessment of the clause, the agreement within which it is found and all of the surrounding circumstances.
8. The distinction made in the cases between a restrictive covenant contained in an agreement for the sale of a business and one contained in a contract of employment is well-conceived and responsive to practical considerations.
9. A person seeking to sell his business might find himself with an unsaleable commodity if denied the right to assure the purchaser that he, the vendor, would not later enter into competition.
10. Difficulty lies in definition of the time during which, and the area within which, the non-competitive covenant is to operate, but if these are reasonable, the courts will normally give effect to the covenant.

With these principles in mind, the Court found that the former employer had a proprietary interest to be protected.   The Court also found that the geographic and time limits of the clause were NOT too broad.  Therefore, the clause was reasonable as between the parties.

Furthermore, the covenant was not contrary to the public interest, as the evidence indicated that there were at least 22 general insurance agents in the surrounding area.

But would have a simple non-solicitation clause sufficed instead of a general non-compete?  The Court didn’t think it would have been enough: where the employee has acquired a close personal acquaintance with the customers of the business, a covenant which prevents the employee from establishing his own business may be justified as opposed to a covenant which merely prohibits the solicitation of former clients by the employee. A non-solicitation covenant would not have been adequate to protect the plaintiff’s proprietary interest in its clients in this case.

For these reasons, the Court found the non-compete enforceable and the employee liable for its breach.

So what’s the moral of this story?  Well, you not only get some general principles about non-competes and non-solicitations in this decision, but you actually get to see how the Supreme Court applied those principles to the facts of the case before it.  It looked at the text of the clause, the agreement, the surrounding facts, the reasonableness of the non-compete, etc.

written by admin \\ tags: business lawyer, employee termination, independent contractor agreement, legal advice, legal forms, non compete agreement, non compete clauses, non solicitation agreement, ontario lawyers, solicitation, terminating an employee, termination agreement

Canada | Canadian not for profit incorporation.

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 incorporating a federal not for profit corporation or an Ontario not for profit corporation, 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. You can also contact me directly if you need a business lawyer.

For the purposes of this blog, I’ll be discussing federal not for profit corporations.  These corporations are created and governed by the Canada Corporations Act.  That Act does not call them not for profit corporations; rather they are called “Corporations Without Share Capital”.  This means that they do not have shareholders, but rather members.  An important difference between for profit and not for profit corporations is that the latter cannot distribute dividends (from profits) to members.  Rather, that money can only be put towards the objects or purposes for which the not for profit corporation was created.

For Profit Corporations (Generally)
Now, I’ve previously blogged extensively about corporations generally, but some things are worth repeating here.  First, corporations are separate legal persons.  They have their own assets.  They have their own rights and obligations.  They can sue and be sued.  They are separate from their owners (called shareholders) and managers (directors, officers, employees).  Now, corporations are great business vehicles because they afford limited liability protection to the shareholders: the personal assets of the shareholders cannot generally be touched if the corporation has to pay for something.  The corporation is created by legislation through the filing of Articles of Incorporation.  You should check out my previous blog posts about corporations, shares, articles, roles and responsibilities, etc.

Canadian Not-For-Profit Corporation
Part II of the Act deals with Corporations Without Share Capital.  Section 154(1) of the Act says that the Minister of Industry MAY issue letters patent to any persons who apply for the creation of a corporation without share capital.  There are a few important caveats here.  First, there must always be at least 3 incorporators and directors of the not for profit corporation.  Second, the letters patent is simply a government document – much like the Articles of Incorporation of a for-profit business.  Third, the corporation must carry on a purpose without monetary gain to its members.  So it must have a purpose that is national, patriotic, religious, philanthropic, charitable, scientific, artistic, social, professional, or sporting in nature.

Application of Letters Patent
To apply for letters patent, you need to submit:

1. Cover Letter
2. Application
3. By-Laws
4. Statutory Declaration
5. Filing fee of $200

Each will be discussed in turn.

Cover Letter
The cover letter should be addressed to:

Corporations Canada
Industry Canada
9th Floor, Jean Edmonds Towers South
365 Laurier Avenue West
Ottawa, Ontario, K1A 0C8

The letter should indicate who you are, what your contact information is and what documents are enclosed.  You will also need to enclose a cheque in the amount of $200 payable to the “Receiver General of Canada”.  If you are requesting them to do a NUANS name search report, then you’ll also need to enclose or add another $15 to cover the cost of that search.

Application
The application must indicate:

• The proposed name of the not for profit corporation (so you’ll need to provide a recent NUANS name search report for the proposed name which is less than 90 days old – or you can simply pay $15 and get the government to do it for you)
• Who the incorporators are (there must be at least 3 of them)
• The objects of the corporation

There are also additional clauses which can be included in the letters patent dealing with the director’s ability to borrow money, issue debt, and pass by laws as the directors see fit.

The application must be signed in duplicate and the originals are to sent to the government.

The By-Laws
Two copies of the by-laws of the proposed corporation must be provided with the application for incorporation. If you need help drafting these by-laws, give me a shout.

Statutory Declaration
One of the incorporators must swear (before a commissioner for taking oaths) that the contents of the application are true.

Processing Time
Processing times vary, depending on whether you’ve provided the government will all required documentation and there are no problems with your proposed name.  It can be as quick as 3 days for expedited processing, or 5 days for standard processing.

Extra-Provincial Licensing
If you have a federal not for profit corporation, you’ll need to obtain provincial licenses for those provinces which you operate in.  If you operate in Ontario, then there is no fee.  But this varies from one province to the next (e.g. Alberta charges $175 for an extra provincial license).

In a future blog, I’ll get into maintenance fees and taxes with respect to federal not for profit corporations (i.e. corporations without share capital).

For more information about incorporating a not for profit corporation in Canada, check out the government’s website here.

written by admin \\ tags: articles of incorporation, business lawyer, business vehicles, canada corporations act, educational purposes, legal advice, legal persons, liability protection, limited liability, ontario lawyers, professional assistance, profit corporation, profit corporations, share capital, shareholders

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 employment-related matters, 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 an employment or independent contractor agreement, then check out our legal forms + video guides. You can contact me directly if you need a business lawyer.

So in this blog, I’ll be talking about how an employer can make fundamental changes to an employee’s employment without triggering a constructive dismissal claim.  Recall from previous blogs that, if an employer changes a fundamental aspect of an employee’s job (e.g. increased responsibilities, decreased pay, decreased benefits, relocation, etc.), then the employee can claim that they were constructively dismissed and seek damages for reasonable notice.  In order to avoid the cost and time of litigating a constructive dismissal case, an employer should wise-up so that it does not INADVERTENTLY terminate the employee.

Wronko v. Western Inventory Ltd.
This leads me to my discussion of Wronko v. Western Inventory Services Ltd. 2008 ONCA 327, leave to appeal refused, 65 C.C.E.L. (3d) 185 (Supreme Court of Canada).  This was an Ontario Court of Appeal decision.  In this case, after working for the company for 16 years, an employee was promoted to management.  Later that same year, the employee signed a new employment agreement that provided him with a payment of 2 years’ salary and bonus in case he was terminated without cause.  About a year and a half later, the employee was presented with a revised employment agreement.  This new agreement cancelled and replaced his previous termination package with a simple “3 weeks for each year of service” up to a maximum of 30 weeks’ notice package.   This new package was designed to match other packages for senior executives.  This did not sit well with this particular employee, since he stood to gain more under the previous termination package.  So he refused to sign.  The president of the company sent an email to the employee, advising him that the amended employment agreement was in “full force and effect”.  The employee fought back, claiming that he had been constructively dismissed.  He launched a lawsuit.

The Court of Appeal found that the president’s email was evidence of the employer terminating the employment relationship.  It was a unilateral and unequivocal change to a fundamental aspect of that relationship.   The employee had also repeatedly and steadfastly rejected the amendment – but to no avail.  Since the employer had terminated the relationship, the employee had 3 options: (1) accept the change, (2) reject the change and sue for damages for constructive dismissal, or (3) make it clear to the employer that the new terms are being rejected (at which point the employer has to decide whether to terminate the employee with proper notice and offer re-employment on new terms or acquiesce to the employee’s position).  In the case of (3) above, if the employee does not terminate the employee and permits him or her to keep fulfilling his or her job requirements, then the employee is entitled to insist on adherence to the terms of the original employment contract!

In this particular case, the Court of Appeal found that the third option above fit the bill.  Specifically, the employee explained that he had rejected the new changes.  Instead of terminating the employee and offering re-employment on new terms or continuing his employment based on the old terms, it simply terminated him.  This triggered the old termination clause (not the new one, since that agreement had not been accepted by the employee).  As such, the employee was entitled to 2 years’ termination pay!

Lessons learned
So what can be gleamed from Wronko?  Well, if you’re an employer and you want to avoid being sued for constructive dismissal, you need to offer fresh consideration (something of value to the employee) when you unilaterally change a fundamental aspect of employment.  That “consideration” cannot simply be continued employment.  There must be additional pay, benefits, etc. to reflect a bargain.  Furthermore, this fresh consideration must be accepted by the employee.  It’s best to document this acceptance through a new employment agreement or amendment to the existing one.  If that consent is not forthcoming, then the employer has a few options: (1) terminate the employee based on the provisions of the employment agreement (or common law or employment standards legislation) and offer re-employment based on new terms or (2) allow the employee to maintain their employment based on the old and existing terms.

written by admin \\ tags: business lawyer, constructive dismissal, court of appeal, employment agreement, fundamental aspect, independent contractor agreement, legal advice, legal forms, ontario court of appeal, ontario lawyers

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 in Ontario, 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. You can contact me directly if you need a business lawyer.

This is part 5 of a series of blogs I’m writing about non-compete and non-solicitation agreements.  In my first blog, I discussed what they were and when you need them.  I also talked about what tests and factors a court will consider in determining whether to enforce a non-compete clause.  In my second blog, I tackled the question of when should an employer or human resources manager require an employee to sign a non-compete or non-solicitation agreement.  In my third blog, I discussed how they could be challenged.  In my fourth blog, I talked about things that employers and human resources managers should be on the lookout for if they want to try to mitigate lawsuits from happening or succeeding in court.  In this blog, I’ll be talking about an important issue that comes up often: what happens if there is no WRITTEN non-compete or non-solicitation agreement or clause within an employment agreement?

OK, so as a human resources person or a small business owner, you’ve gone ahead and hired someone.  Now, for whatever reason, you didn’t purchase an Employment Agreement from Dynamic Lawyers.  That agreement contains restrictive covenants.  But you didn’t think about it.   Now the employee has left and is basically competing with you in the same business.  Nothing was ever written or signed to the effect that they couldn’t.  So where does that leave you?

It’s a very complex area of law, but there was an important case that talked about this very situation.

Gertz v. Meda Ltd.
In Gertz v. Meda Ltd. (2002), 16 C.C.E.L. (3d) 79, the Ontario Superior Court of Justice was faced with the following situation…An employee engineer worked for a placement agency for 8 years.  The employee was dismissed and then went to work briefly for another placement agency to help put together a proposal he had previously given to the original placement agency.  This is where things got contentious: the original placement agency sued for damages resulting from breach of fiduciary duty and confidentiality.

So the issues before the Court were twofold: (1) was the employee a fiduciary of the employer which required him NOT to compete against the employer and (2) did the employee breach confidentiality provisions.  Keep in mind that there was no written agreement dealing with these matters, so the Court would have to rely on common law (i.e. judge-made law).

With respect to whether the employee breached his fiduciary duty to the employer by leaving and then immediately competing, the Court concluded that this particular employee owed NO SUCH DUTY.  Therefore, the employee was free to do so.  The Court reasoned that, while certain employees (such as top management, directors, officers, etc.) may have a fiduciary duty not to do so (in accordance with their duty of loyalty, good faith, and avoiding conflicts of interest, etc.), this particular employee was simply a glorified salesman:

38 I conclude on the evidence that Mr. Gertz was, essentially, a salesman who managed the Chrysler account and others, with a view to selling labour at a markup. He had little or no authority to make decisions that affected the company. He had no power to direct and guide the affairs of the company. As issues arose that required the exercise of authority, his function was to make recommendations only, while the power to make decisions remained with Mel Lawn and, to a lesser extent, Mr. Rosenthal. To use the label that emerges from the caselaw, I find that Mr. Gertz was a “mere employee”, to whom a fiduciary duty does not attach.

OK, so the court found that MERE employees are entitled to get up and compete with their previous employer.  Those in top management, however, may not be so lucky – even if no contract is signed.  Their duties of good faith, loyalty, and avoiding conflicts of interest may restrict their ability to compete.

So that takes care of the first issue.  So what about using confidential information?  When the employee left, he didn’t take anything with him other than his accumulated knowledge retained in his mind. The Court found that there was no breach of confidence.  So how did it get there?  Well, first the Court said that a breach of confidence requires 3 elements:

1. Confidential information
2. Which was communicated in confidence and
3. Which was mis-ued by the party who received it.

Among other things, the Court found that the information was not confidential (it was shared, common to the industry) and it was not unfair for the employee to use that information anyways since he had been wrongfully terminated.

So what’s the moral of the story?  Well, just because employees haven’t signed restrictive convenant agreements (e.g. non compete, confidentiality, non-solicit) doesn’t mean that they can be PREVENTED from competing or soliciting.  At common law, they CAN be PREVENTED from doing so if they owed a fiduciary duty or a duty of confidence to the employer.  There are common law tests that need to be met before a judge will conclude that the employee did anything wrong.  So why wait until a judge rules on an unclear matter when you can just have a contractual obligation entered into at the beginning of the relationship and perhaps at the end?  If they are clear, reasonable, and fair and entered into properly, then you (as an employer) stand a much better chance of enforcing them if you need to.

FYI, in case you’re looking for an Ontario, lawyer-prepared, customizable, downloadable and AFFORDABLE Non-compete Agreement, then look no further:

NON-COMPETE | NON-COMPETITION AGREEMENT

You can use this form to prevent a party from competing with you in a business during and after the term of an agreement.  If you’re an employer hiring an employee, you can purchase an Employment Agreement (indefinite term), which comes with non-compete clauses in it.  If you’re an employer and you are terminating an employee, you can find non-solicitation clauses in this Employee Termination Agreement.  If you’re a client and wish to engage an independent contractor, you can purchase an Independent Contractor Agreement, which also comes with non-compete language in it.  If you’re just doing a business deal with a party (e.g. sharing information, joint venture, partnership or shareholders, services, etc.) and want to prevent them from competing, then you need one of these agreements!

The Video Guide (below) is just a sneak peak of the video guide that comes with the Non-Compete Agreement Legal Form + Video Guide  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!

Also, in case you were looking for a NON-Solicitation Agreement, you’ve come to the right place:

Non Solicit | Non-Solicitation Agreement Ontario

This legal form can be used to restrict one party’s ability to solicit the customers and employees of another party. If you’re looking for Non-Compete Agreements, Confidentiality and Non-Disclosure Agreements, you can purchase them as well on Dynamic Lawyers.

If you’re an employer hiring an employee, you can purchase an Employment Agreement (indefinite term), which comes with non-solicitation clauses in it.  If you’re an employer and you are terminating an employee, you can find non-solicitation clauses in this Employee Termination Agreement.   If you’re a client and wish to engage an independent contractor, you can purchase an Independent Contractor Agreement, which also comes with non-solicitation language in it.  If you’re just doing a business deal with a party (e.g. sharing information, joint venture, partnership or shareholders, services, etc.) and want to prevent them from soliciting customers or employees, then you need one of these!

This information and this sample video guide is NOT legal advice and is provided for informational purposes only. If you need an Ontario lawyer, go to Dynamic Lawyers and make a post.

written by admin \\ tags: business lawyer, employment agreement, human resources person, independent contractor agreement, lawsuits, legal advice, legal forms, mississauga, non compete clause, non solicitation agreement, ontario lawyers, professional assistance, restrictive covenants, small business owner, solicitation, video guides

I was just googling “Last Will and Testament” to see what I could find.  Well, I happened to come across a FREE Last Will and Testament Kit.  I was curious as to the quality of this Free Kit, particularly when you compare it to ours Last Will and Testament.  So here’s what I discovered: it was completely CRAP-TASTIC and people should stay away from these types of kits.

Let me explain why…

Jurisdiction
The first problem you may not realize is that laws change from one province to the next.  So if someone put together a generic Law Will and Testament Kit that is not in compliance with Ontario laws, then you could be in hot water!  You basically want to have an Ontario lawyer (such as myself) prepare your Will in accordance with Ontario laws.  I’ve blogged extensively about the requirements, tips, and traps, etc. that are SIMPLY NOT addressed in FREE online kits.  Things like getting an affidavit of execution (for the purposes of probating the Will), dealing with RRSPs and Insurance declarations, dealing with legacy issues, etc.  These things are ONTARIO-specific because of Ontario laws and cases.  Non-Ontario lawyers who put together generic Will templates with the bare bones may end up COSTING YOU MORE in time and money than if you had done it right the first time!  That’s problem #1!

No Guidance
I came across a very old Ontario case where the judge held that no reasonable person should be doing their own Will.  These are important and complicated legal document which are written in legalese (a language which only lawyers and judges understand and speak) and have a number of implications (e.g. tax, family, etc.).  The bottom line is that, without knowledge and guidance, you’re bound to make mistakes in preparing and finalizing your Will.  But that’s where our Video Tutorials and Written Guides come into! Every legal form package we offer comes with a FREE Video Tutorial and 2 Written Guides (the first one is specific to the legal for and the other one is more generic and entitled “Is My Legal Form Valid and Enforceable?“)

Simple to Read
Just reading the other Last Will and Testament made me ask: how can anyone other than a lawyer understand this stuff?  There is no guidance.  But it’s not even written in humanese!  It’s written in legalese.  Words like Legacy, Executor, Trustee, Devise, Bequeath, etc. are commonplace.  They mean something, but if you don’t know what they mean, you may get confused and frustrated.  Also, there are often long-winded sentences that are complex and confusing. That’s where our legal forms differ: we focus on stripping out the legalese and leaving the good stuff in.  We strive to use language that is both clear and meaningful.  That’s a key difference: understand the legal document.  It’s written in your language so you can understand and modify it!

Lawyer Review
The final really GREAT thing about our legal forms is the lawyer review functionality.  If you need a lawyer, you can just make a post and get FREE quotes from local lawyers practicing in the area of law you required.  Other websites – particularly the ones that I saw – don’t offer REAL LIVE LOCAL lawyers to help you.  Sometimes, there are customer service people, but THEY ABSOLUTELY 100% CANNOT GIVE you legal advice – or else they will be breaking the law.  Why would you trust anyone other than a trained and licensed professional to help you with your Last Will and Testament?

So there’s my little rant about other online FREE legal kits for Wills…don’t trust ‘em – you could be making a huge mistake!  You should invest a small amount of money today to get top notch service in order to avoid a pound of pain tomorrow!

written by admin \\ tags: affidavit of execution, free last will and testament, last will, last will and testament, legacy issues, legal document, ontario laws, ontario lawyer, ontario lawyers, video tutorial, will

Shareholder Agreement Template

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholders agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Ontario lawyers who can assist you in this regard (I would know, I’m one of them!).  If you want to get in touch with me directly, feel free to email me directly to discuss all your shareholder agreements needs!

So this is a follow up to my recent post about Shareholder Agreements in Ontario.  In this blog, I’ll be talking about some of the nuances of a typical shareholders agreement.

Shares, Shareholders, and Shareholders Agreements
So lets start off with the basics, shall we?  Corporations are separate legal persons.  They are separate from their owners (called shareholders) and managers (typically, the officers, directors, and employees).  They have their own rights, duties, etc.

Now, whoever owns the shares of the corporation owns the corporation.  These persons – who can be individuals, corporations, partnerships, etc. – are called shareholders.  There may be different types of shareholders, depending on how the corporation was initially structured.  For example, if the corporation wanted SOME people to control it, then those people would have VOTING shares.  Other people who owned part of the corporation but did not have control over it would have NON-VOTING shares.  The VOTING shares are used at shareholder meetings to vote in a board of directors (who appoint the officers) to manage the corporation.  Those with NON-VOTING shares don’t get to vote anyone in.  If you want to know more about the rights, privileges, conditions, etc. of shares, you can skim through my other blogs about corporate shares here and classes and series of shares here.

Now, upon dissolution, the assets of the corporation will be liquidated and paid out to creditors and shareholders.  Certain shareholders may have priority over other shareholders.

There may also be restrictions on a shareholder’s ability to transfer the shares.  For example, the consent of the board of directors or the shareholders may be required to do so.  There may be other kinds of restrictions or obligations you want to attach to the shares.  These things (among other things) can be taken care of through a SHAREHOLDERS AGREEMENT.

When are they used?
Shareholders Agreements are typically used when parties are either first starting a company and want to outline their respective rights, privileges, duties, etc. or when parties are admitting new shareholders to the corporation.  The latter is typically the case when venture capitalists (financiers) want to help get the corporation’s business up and running.  The purpose of the shareholders’ agreement is to govern the relationship between the shareholders.  Without one, there can be many disputes that arise and which get resolved in a costly and time consuming manner: namely, court!  So having certainty over many of the important issues found in a  shareholders agreement CAN actually help to avoid or mitigate future disputes since everyone will (or at least “should”) know what they’re getting into.

They are private and comprehensive
Remember: a shareholders agreement is generally a private agreement which is not in the public realm (unless it is disclosed as part of a lawsuit).  This can be contrasted with the articles of incorporation (the document which creates the corporation) which is available to the public and which may also deal with certain things that the shareholders agreement deals with (e.g. restrictions on share transfer) but which is not as comprehensive.  Therefore, for the sake of confidentiality and comprehensiveness, it is recommended to have a shareholders agreement and not simply rely on articles of incorporation!

Shareholders Agreement Typical Structure
So what can a typical shareholders agreement deal with?  Well, a typical shareholders agreement can deal with things like:

1. Control and Management
2. Transferring Shares
3. Valuing Shares
4. Non-Compete and Non-Solicitation
5. Confidentiality
6. Resolving Disputes
7. General Terms

I’ve previously blogged about these things, so I would encourage you to keep reading to educate yourself!

Additional Resources to Learn About Shareholders:

1. Online School – Learn about shareholders and corporations in legal and business classes.
2. Shareholders – Definition

written by admin \\ tags: educational purposes, lawyer, legal advice, ontario lawyers, regard, shareholder agreement, shareholder agreements, shareholders agreement

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholders agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Ontario lawyers who can assist you in this regard (I would know, I’m one of them!).  If you want to get in touch with me directly, feel free to email me directly to discuss all your shareholder agreements needs!

Here, I’ll be discussing a basic template and things you should consider/pay attention to when thinking about these types of agreements.  For the purpose of this blog post, I’ll be discussing unanimous shareholder agreements in the context of the Canada Business Corporations Act.  Before diving into the nuts and bolts of the template agreement, however, I think I’ll take a step back to discuss some of the basis about shareholders agreements generally…

What is a Unanimous Shareholder Agreement?
A unanimous shareholder agreement is defined under the Act (s. 146) as a lawful written agreement among the shareholder of a corporation (some or all of them) that restricts, in whole or in part, the powers of the directors to manage or supervise the management of, the business and affairs of the corporation.  So a shareholder agreement is basically an agreement that allows the shareholders to usurp and override the powers of the directors (e.g. the shareholders become the directors or they agree to each appoint 1 director on the board of directors, etc.).

Violation of the agreement on the part of a shareholder can lead to a breach of contract claim.  If and when shareholders take over the power of the directors to manage the corporation, the Act gives them the same rights, power, duties, and liabilities as a director of the corporation.  This is important because generally shareholders’ liability is limited under the Act (in other words, unless a party can pierce the corporate veil, shareholder’s personal liability and personal assets cannot be exposed to having to pay for damages of the corporation, its representatives, agents, employees, directors, etc.).

Shareholder agreements are important to have early on in the corporation’s life because it details the rights and obligations of each shareholder, including management issues and share transfer provisions.  It puts expectations on the table early on.  Shareholder agreements are much harder to enter into between shareholders later on when progress (which carries with it political jealousies and potential infighting) has been made.

Finally worth mentioning is that the Act makes certain corporate requirements and powers subject t0 a shareholder agreement, including:

• Special majorities for director or shareholder votes (s. 6(3));
• The power to borrow and give security (s. 189);
• Issuance of shares (s. 25(1));
• Directors’ ability to manage, or supervise the management of the business and affairs of the corporation (s. 102);
• The making, amending or repealing of by-laws (s. 103);
• The appointing of officers (s. 121);
• Directors and officers compliance with a unanimous shareholders agreement (s. 122(2)); and
• Directors and officers remuneration (s. 125).

A copy of the shareholder agreement must be kept at the corporate head office (along with the other documents in the minute book).

How much does a Shareholder Agreement cost?
Shareholder agreements vary in cost (e.g. from $2,500 to $10,000), depending on the complexity of the provisions in the unanimous shareholder agreement.  For example:

• What will be the business of the corporation?  Will this be restricted?
• Who are the parties (e.g. voting and non-voting shareholders)?
• What mechanism will be used by the shareholders to elect or appoint board members?
• What mechanism will be used by the shareholders to vote their shares?
• What mechanisms will exist for shareholders to sell or transfer their shares (e.g. shotgun, put/call, consent sales, auctions, piggy back, drag a long, etc.)?
• What about compensation for shareholders who become working shareholders/directors?
• What about working shareholders who become inactive?  How will their shares be treated upon inactive?
• What about confidentiality, non-solicitation, and proprietary information provisions?  Are these needed?
• How will the agreement be terminated?  Can dissolution result from a shareholder complaining about a breach of the agreement?
• General provisions such as notice, entire agreement, currency, assignment, severability, waiver, independent legal advice, etc.

So with these things taken care of, let’s get into the real meat and potatoes of a shareholder agreement template, shall we?

Parties
Make sure to properly identify the parties.   You should have the correct spelling of the parties’ names.  Also, identifying features such as “X is a corporation incorporated under the laws of Canada with a mailing address at” is also good.  If you have too many parties, you may want to use a Schedule, where all of the parties for example are holders of a particular class of shares, etc.

Recitals
Here, you’ll want to put some basic information about the corporation, the parties, and the reason for their entering into a unanimous shareholder agreement.   It’s pretty common to see something in this section like:

• The authorized capital of the Corporation is X;
• The issued and outstanding shares of the Corporation is X;
• The parties want to enter into this agreement to fix and determine their respective rights, duties, obligations, etc. with respect to each other and the Corporation.

Preliminary Matters
In the first real section of the unanimous shareholder agreement, you’ll probably want the parties to confirm the truth and completeness of the recitals and define terms used throughout the Agreement.

Business of the Corporation
In this section, you may want to define the business of the corporation.  This will come in handy with respect to non-compete provisions and agreements which restrict parties’ ability to compete with the Corporation in the business (however that is defined).

Operation and Control of the Corporation
Here, it’s typical to find provisions that say that the discretion and powers of the directors to manage and supervise the management of the corporation are being restricted and usurped by the Shareholders.  Essentially, the Shareholders are relieving the Directors of their powers.

The provisions in this section go on to provide details – often akin to the Corporation’s by laws – on how the Shareholders as both the Directors and the Shareholders will conduct meetings (e.g. nominees, notice, quorum, casting votes, elections and appointments, passing resolutions, etc.).

The provisions in this section may also include specific requirements for the Corporation to enter into contracts (e.g. X number of Directors required) or for the Corporation to do things with respect to issuing shares, borrowing money, selling or leasing Corporate property, amending the Corporation’s articles, continuing the Corporation in another jurisdiction, winding up or dissolving the Corporation, etc.  These things may require special majorities (i.e. majorities which are not specified anywhere in the Act).

You’ll also find provisions in this section of the unanimous shareholder agreement dealing with things like who the officers of the Corporation will be, keeping proper books of account, appointing a banker, etc.

Restrictions on the Issue and Transfer of Shares
This is a very important part of any shareholder agreement: restrictions on share transfers.  There are many ways to restrict transfers on shares, some of which include:

• General prohibition against the Corporation and the Directors for issuing new shares.
• General prohibition against existing shareholders from transferring, selling, assigning, etc. their existing shares.
• A requirement that any party that does, through one of the permissible ways of acquiring shares, acquire shares becomes bound to and a party of the unanimous shareholder agreement.

Here are some of the ways in which share transfers are permitted/restricted:

• Consent Sale: a shareholder can transfer their shares after obtaining the consent of a pre-determined number or percentage of other shareholders.
• Right of First Refusal: a shareholder who receives an offer from a third party for the purchase of their shares must first offer the other existing shareholders the opportunity to purchase those same shares on terms, for example, that are equivalent to the third party’s offer.
• Shot Gun Buy-Sell: a shareholder can name a price at which it is willing to either buy or sell its shares.  The offer is then presented to other shareholders who have a specific amount of time to decide whether to accept the offer.
• Right to Come Along (Piggy-Back): when a shareholder who sells to a third party, the other shareholders are entitled to have their shares sold on, for example, the same terms to that third party.
• Right to Take Along (Drag Along): when a shareholder sells to a third party, the other shareholders are forced to have their shares sold on, for example, the same terms, to that third party.
• Option to Purchase (Call Option): this right gives a shareholder/Corporation the option to purchase shares in certain circumstances (these are called Triggering Events) from the Corporation/shareholder.
• Option to Sell (Put Option): this right gives a shareholder/Corporation the option to sell shares in certain circumstances from the Corporation/shareholder.
• Auction: an auction is a mechanism whereby shares are sold to the highest bidder (or on certain terms of the auction) to third parties.

In each of these circumstances, there are a few common variables: timing or an event occurring, valuing the shares, and rights/obligations affecting the other shareholders, closing provisions, identification of the buyer/seller/third parties (if any), etc.

Confidentiality
If a Shareholder receives Confidential Information (which should be a defined term) in the course of being a Shareholder, Director, Officer, employee, etc. then they should be restricted in what they can do with that information.  I’ve previously blogged about confidentiality agreements, so you can refer to that blog for more information about drafting, understanding and negotiating confidentiality agreements here.

Proprietary Rights
This section will deal with things like defining intellectual property rights (remember that there should be a definition for both proprietary rights and developed proprietary rights), who they belong to, the waiving of any moral rights under the Canada Copyright Act, and an agreement to obtain protection of intellectual property rights.

Non Competition
This section will deal with the repercussions, if any, of a Shareholder who starts competing with the corporation in the Business (which should be a defined term).  To make these provisions enforceable, they should be specific enough (e.g. by identifying parties, the Business, a time line, etc.).  I’ve written a lot about restrictive covenants such as non-compete and non-solicitation clauses and I’d encourage you to check them out here (but make sure to contact a lawyer to have them properly drafted!):

• Introduction
• General Overview
• When to sign ‘em (employment context)
• Too vague / unclear
• Justification Test
• Traps to watch out for (employment context)

Dispute Resolution Clauses
If you want to avoid the cost, time, headache, and uncertainty of litigating disputes in respect of the Shareholder Agreement, you might want to include a dispute resolution clause.  These clauses can say something like: the parties agree that any and all disputes and questions that arise between any of the parties in connection with the Shareholder Agreement (or construction or interpretation or application thereof), any section of the Shareholder Agreement, or any document, act, omission, etc. related to the Shareholder Agreement shall be resolved by mediation or arbitration (or perhaps mediation fist, and then arbitration).  In either case, you should specify how many mediator(s) and arbitrator(s) will be appointed, who will pay for them, where the mediation or arbitration will be held, how the procedure will be determined (by the parties or by the mediator or arbitrator?) and whether an appeal is available from the decision of the arbitrator (mediator decisions are generally non-binding).

Termination
Here, provisions may be put in place to initiate termination of the agreement where:

• There is only 1 shareholder left.
• A shareholder dies, becomes disabled, or goes bankrupt, etc.
• There is a breach of the shareholder agreement.
• A specific number or percentage of shareholders mutually agree to terminate the agreement.

General Terms
Here are some of the general terms that I’ve typically found in Shareholder Agreements (and other agreements for that matter):

• Notice (how do the parties give notice under the agreement for things like termination).
• Further Assurance (sometimes, you need the parties to the agreement to give additional representations and warranties such that they say they have all the requisite power and authority to do everything they’ve promised to do under the Agreement and that they will do those things as promised).
• Assignment (e.g. is this to be done by the parties having to consent in writing?).
• Survival of terms (i.e. if a term is found by a court to be void, should the rest of the agreement survive?).
• Governing Law (which jurisdiction governs the interpretation and enforcement of the agreement?).
• Amendment (how is this to be done?).
• Entire Agreement (i.e. this agreement supersedes all other agreements – whether oral or written – relating to the same subject matters in the agreement)
• Waiver (e.g. no failure or delay of a party to enforce or exercise its rights under the agreement constitutes a waiver, etc.).
• Interpretation (singular vs. plural; masculine vs. feminine, section headings, etc.)
• Power of Attorney (shareholders sometimes require that, if any shareholder neglects or refuses or is unable to execute or deliver any document required to be delivered, then they shall be deemed to have appointed the Corporation as his or her lawyer attorney and agent for such purposes).
• Independent Legal Advice (an acknowledgment by the parties that they have been told to and have received independent legal advice concerning the nature and substance of the Shareholder Agreement).
• Severability (in case one provision is struck down and rendered invalid doesn’t mean the rest of the agreement is).
• Currency (in which currency do dollar amounts referenced in the Shareholder Agreement pertain to?).

Please keep in mind that there are many other kinds of terms and conditions you can find in the general terms section of this agreement.  You should consult with a lawyer to address these general terms.

Execution
The final section of the agreement (other than any schedules or exhibits) requires that the parties, or duly authorized representatives of the parties with the power to bind, execute the agreement.  It is sometimes a requirement that witnesses be present and sign their names alongside the parties’.

In conclusion, this blog has discussed a basic unanimous shareholder agreement template.  You should note, however, that the particular details of a unanimous shareholder agreement vary depending on the needs of the shareholders and the business.  These documents should be put together by lawyers (such as myself) who are trained, knowledgeable, and experienced professionals.

written by admin \\ tags: board of directors, breach of contract, business corporations, canada business, contract claim, lawyer, legal advice, liabilities, nuts and bolts, ontario lawyers, regard, shareholder agreement, shareholder agreements, shareholders agreement, shareholders agreements

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 in Ontario, 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. You can contact me directly if you need a business lawyer.

This is part 3 of a series of blogs I’m writing about non-compete and non-solicitation agreements.  In my first blog, I discussed what they were and when you need them.  I also talked about what tests and factors a court will consider in determining whether to enforce a non-compete clause.  In my second blog, I tackled the question of when should an employer or human resources manager require an employee to sign a non-compete or non-solicitation agreement.  In this blog, I’ll be discussing the things that employers and human resources managers should be on the lookout for if they want to try to mitigate lawsuits from happening or succeeding in court.

Clear
As with any legal contract, if a restrictive covenant is vague or ambiguous such that it is open to multiple interpretations, it may not be enforceable.  So watch out!  Make sure your term is clear in what it purports to do.  If you need help, contact a lawyer.  Remember: there’s an age-old rule of interpretation called contra-proferentum which states that, in the case of an ambiguity, the provision should be interpreted against the party who wrote it.  Ouch!  Don’t use wishy-washy language, such as “may”; use definitive language such as “must” or “shall”.   Finally, don’t provide alternatives in the restrictive clause itself – for example “the non compete clause may last 1, 2, or 3 years”; this will make it unenforceable for vagueness.

Complete
If your restrictive covenant is missing an important term (e.g. timeline, geographic limit, etc.), then it may be rendered incomplete and unenforceable.

Reasonable
Recall that only reasonable restrictive covenants are enforceable.  They must be reasonable as between the parties’ legitimate interests and for the public in order to be upheld.  What’s reasonable, you ask?  Well, it will depend on the circumstances of each case.  But you need to make sure that the proprietary interest you’re trying to protect (e.g. client lists, trade secret, pricing policies, technology), your timeline (i.e. the length of time you want the restrictions to last for), your geographic limits, and your scope of protection are all reasonable.  With respect to the latter, are you preventing a person from competing in the entire business or simply from soliciting clients?  What exactly will the former employee be prevented or limited from doing? If a restrictive covenant goes above and beyond what is “reasonable”, then the employer may run into trouble.

Explain why it’s needed
It’s not a bad idea to include in a non-compete or non-solicitation agreement the reason for having those types of restrictive provisions.  This will form part of what the parties knew at the time, as well as the consideration (i.e. the benefits and detriments that passed between the parties as part of making the fundamental exchange).  So the reason for having a non-compete or non-solicitation agreement could include:

• The employee will be provided with confidential information for his or her job;
• The employer has invested a lot of time, energy, and resources to developing a trade secret, patent, or technology;
• The employee will have direct access to clients and client lists;
• The employee will be a representative of the business (such that the public equates the identity of the employee with the identity of the business);
• The employee will gain significant insight into the employer’s business; and
• The employer’s industry is new, specialized, or very competitive.

Pay for it!
Always remember that asking an employee to give up a right doesn’t come for free.  Their right to compete and solicit can only be restricted temporarily and in exchange for consideration (i.e. pay, benefits, etc.).  So just make sure to equate this consideration with the right that they employee is agreeing to give up.

Things change over time: make amendments
It’s always a good idea to review your non-compete and non-solicitation agreements every now and then and renew them (i.e. by reinforcing their existing and providing additional consideration for the employee to agree).  Why?  Well, if your 10 year old restrictive covenant says that the employee cannot compete in the business and the business has changed over time, then it may be too vague to enforce.  You need to be more specific and have the agreement reflect with some precision what the business is.  Only that way can you mitigate against potential court challenges.  The same thing goes if you say that the business involves the employer selling products or services.  What it sells today may be different from tomorrow.  And if that changes, then so too should the contract.

How long is too long?
Sometime less than 2 years seems to be reasonable and capable of being upheld.   5 years is unlikely to be enforceable.  Courts will look at a number of factors to determine whether the temporal limits are reasonable – such as the employee’s age, position, experience, time with the employer, and termination pay (the more they are paid, the longer the restrictive covenant will tend to be enforceable for).

How far too far?
You want to be pretty precise here in terms of language, but also reasonable.  If you as the employer try to say something like “you can’t compete in the same area as where my customers live”, it’s unlikely to be enforceable (because it’s too vague: where the heck do the customers live?”).  Also, you can’t ask for the moon by saying that a person can’t compete within a very large geographic area (e.g. country). Sometimes, an employer will be able to claim an entire country or province as off limits, but that will be because the employer actively operates throughout that area.  You need to be fair and reasonable here or else your restrictive convenant won’t be enforceable.

Time to review, get legal advice, and negotiate

Finally, it’s always a good idea for an employer to provide time to the employee to read and understand the agreement, get legal advice (this will effectively impute the knowledge of the lawyer onto the employee), and even negotiate the terms of the restrictive convenant.  Showing these things will help to mitigate potential challenges.  It’s particularly important for the employee to demonstrate that the employee negotiated the clause (and just didn’t accept things blindly), as this will prevent the employee from arguing things like they were under duress, undue influence, etc. which forced them to sign.  I can’t stress having a clause in the agreement that says that the parties have had independent legal advice.  Courts will not look kindly on those parties who have had such advice and then later claim they didn’t understand or agree to the restrictive covenant.  The court may say: too bad!

By the way, if you’re an Employer and looking for an Employment Agreement (indefinite term), then you’ve come to the right place:

Employment Agreement (Client) – Indefinite Term

This Ontario Agreement can be used by an Employer who wants to hire an Employee. The “indefinite term” part means that the Agreement starts on a date provided for in the Agreement and then comes to an end only when the Employee resigns or is terminated by the Employer (by giving notice, payment in lieu of notice, or for Just Cause). Here’s the sample Video Guide that comes with this Employment Agreement – Indefinite Term:

FYI, in case you’re looking for an Ontario, lawyer-prepared, customizable, downloadable and AFFORDABLE Non-compete Agreement, then look no further:

NON-COMPETE | NON-COMPETITION AGREEMENT

You can use this form to prevent a party from competing with you in a business during and after the term of an agreement. If you’re an employer hiring an employee, you can purchase an Employment Agreement (indefinite term), which comes with non-compete clauses in it. If you’re an employer and you are terminating an employee, you can find non-solicitation clauses in this Employee Termination Agreement. If you’re a client and wish to engage an independent contractor, you can purchase an Independent Contractor Agreement, which also comes with non-compete language in it. If you’re just doing a business deal with a party (e.g. sharing information, joint venture, partnership or shareholders, services, etc.) and want to prevent them from competing, then you need one of these agreements!

The Video Guide (below) is just a sneak peak of the video guide that comes with the Non-Compete Agreement Legal Form + Video Guide 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!

Also, in case you were looking for a NON-Solicitation Agreement, you’ve come to the right place:

Non Solicit | Non-Solicitation Agreement Ontario

This legal form can be used to restrict one party’s ability to solicit the customers and employees of another party. If you’re looking for Non-Compete Agreements, Confidentiality and Non-Disclosure Agreements, you can purchase them as well on Dynamic Lawyers.

If you’re an employer hiring an employee, you can purchase an Employment Agreement (indefinite term), which comes with non-solicitation clauses in it. If you’re an employer and you are terminating an employee, you can find non-solicitation clauses in this Employee Termination Agreement. If you’re a client and wish to engage an independent contractor, you can purchase an Independent Contractor Agreement, which also comes with non-solicitation language in it. If you’re just doing a business deal with a party (e.g. sharing information, joint venture, partnership or shareholders, services, etc.) and want to prevent them from soliciting customers or employees, then you need one of these!

This information and this sample video guide is NOT legal advice and is provided for informational purposes only. If you need an Ontario lawyer, go to Dynamic Lawyers and make a post.

written by admin \\ tags: business lawyer, clauses, contra proferentum, human resources manager, human resources managers, independent contractor agreement, lawsuits, legal advice, legal contract, legal forms, non solicitation agreement, ontario lawyers, restrictive clause, restrictive covenant, solicitation

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.  You can contact me directly if you need a business lawyer.

So this is blog post number two about non-compete and non-solicitation clauses.  In my last blog, I discussed what they were and when you need them.  I also talked about what tests and factors a court will consider in determining whether to enforce a non-compete clause.  In this blog, I’m going to tackle an interesting question: when should an employer or human resources manager require an employee to sign a non-compete or non-solicitation agreement?

Well, there’s basically three options here: (1) right at the beginning, (2) during the course of employment or (3) right at the end.  I’ll discuss the pros and cons of each in turn.

Prior to Employment
This is a good time to bring up a non-compete and non-solicitation agreement so that both parties know what they are getting into.  Also, the consideration (i.e. pay, benefits, and other things of value which the employer will provide in exchange for the employee to agree to the non-compete and non-solicit) will be reflected in the written agreement.  What’s not a good idea is for the employer to have an oral agreement or offer of employment and than have the employee start working on that basis.  The problem is that when the employer then tries to introduce a written employment agreement with non-compete and non-solicitation clauses without offering any new “consideration” (e.g. pay, benefits, etc.), then the employee may claim that he or she was constructively dismissed and then claim damages.  So, as an employer or human resources manager, you definitely want to ensure that the employee does not start working until he or she has been provided with the written agreement, has had time to read and understand and seek legal advice concerning it, and has signed it voluntarily (not under duress or undue influence, etc.).   AVOID ORAL AGREEMENTS OF EMPLOYMENT IF YOU KNOW WHAT’S GOOD FOR YOU!  A problem with having an employee agree to a non-compete and non-solicitation clause right from the get go has to deal with “reasonableness”: whether a restrictive covenant is valid and enforceable will depend, in part, on whether it was reasonable at the time it was entered into (not at the time it was broken).  So if an employee agrees to a restrictive covenant 50 years ago, the courts may look at this negatively.

During the Course of Employment
As discussed above, if the employer tries to unilaterally change fundamental aspects of the employment relationship without giving the employee additional consideration (e.g. pay, benefits, etc.), then the employee can argue that they were constructively dismissed and seek damages for reasonable notice (at common law) and under minimum standards legislation (e.g. Ontario Employment Standards Act, 2000).  So how can an employer avoid this from happening?  Well, it all comes down to asking the employee to agree to the restrictive covenants in return for X (i.e. something of value).  This could be a pay increase, one-time payment, etc.  The employee is being asked to give something up – namely, their right to compete.  So the employer must give something in exchange.

After termination of the Employee
So when the employee is terminated or resigns, it’s a good idea to: (1) get an employment settlement and release agreement (so that the employee does not go after the employee for something to do with the employment or termination thereof) and (2) get the employee to agree to a non-compete or non-solicitation clause, if it can be done.  These are two key things an employer will want; to get them, the employer will need to provide – you guessed it – “consideration” (i.e. something of value to the employee in exchange for giving up its rights).  Now, the good news is that, if an employer can get these documents signed and delivered, then it will look good on the employer if the matter is ever contested in court.  Why?  Because it was agreed to by two parties who were leaving each other.  Unlike a restrictive covenant which is agreed to at the beginning of the relationship (which may have been long time ago), signing at the end of the relationship will mean it’s more recent to when the alleged breach of contract would occur.  The payment may be part of an overall termination / severance package. It’s just a good practice to have these things entered into at the end to put some clarity on the issue so you’re not leaving it up to courts to decide whether they should be enforceable.

By the way, if you’re an Employer and looking for an Employment Agreement (indefinite term), then you’ve come to the right place:

Employment Agreement (Client) – Indefinite Term

This Ontario Agreement can be used by an Employer who wants to hire an Employee. The “indefinite term” part means that the Agreement starts on a date provided for in the Agreement and then comes to an end only when the Employee resigns or is terminated by the Employer (by giving notice, payment in lieu of notice, or for Just Cause). Here’s the sample Video Guide that comes with this Employment Agreement – Indefinite Term:

FYI, in case you’re looking for an Ontario, lawyer-prepared, customizable, downloadable and AFFORDABLE Non-compete Agreement, then look no further:

NON-COMPETE | NON-COMPETITION AGREEMENT

You can use this form to prevent a party from competing with you in a business during and after the term of an agreement. If you’re an employer hiring an employee, you can purchase an Employment Agreement (indefinite term), which comes with non-compete clauses in it. If you’re an employer and you are terminating an employee, you can find non-solicitation clauses in this Employee Termination Agreement. If you’re a client and wish to engage an independent contractor, you can purchase an Independent Contractor Agreement, which also comes with non-compete language in it. If you’re just doing a business deal with a party (e.g. sharing information, joint venture, partnership or shareholders, services, etc.) and want to prevent them from competing, then you need one of these agreements!

The Video Guide (below) is just a sneak peak of the video guide that comes with the Non-Compete Agreement Legal Form + Video Guide 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!

Also, in case you were looking for a NON-Solicitation Agreement, you’ve come to the right place:

Non Solicit | Non-Solicitation Agreement Ontario

This legal form can be used to restrict one party’s ability to solicit the customers and employees of another party. If you’re looking for Non-Compete Agreements, Confidentiality and Non-Disclosure Agreements, you can purchase them as well on Dynamic Lawyers.

If you’re an employer hiring an employee, you can purchase an Employment Agreement (indefinite term), which comes with non-solicitation clauses in it. If you’re an employer and you are terminating an employee, you can find non-solicitation clauses in this Employee Termination Agreement. If you’re a client and wish to engage an independent contractor, you can purchase an Independent Contractor Agreement, which also comes with non-solicitation language in it. If you’re just doing a business deal with a party (e.g. sharing information, joint venture, partnership or shareholders, services, etc.) and want to prevent them from soliciting customers or employees, then you need one of these!

This information and this sample video guide is NOT legal advice and is provided for informational purposes only. If you need an Ontario lawyer, go to Dynamic Lawyers and make a post.

written by admin \\ tags: employment agreement, independent contractor agreement, legal advice, legal forms, mississauga, non compete clause, non solicitation agreement, offer of employment, ontario lawyers, professional assistance, solicitation

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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