Non-Solicitation vs. Non-Compete: When the Line Blurs in Ontario

Imagine you have finally got your dream job. Excellent compensation, excellent benefits, exciting prospects of development. You are about to sign the employment agreement when you notice something: a term that will not allow you to “solicit or accept business” from the clients of your employer upon leaving the job. You pause. Is this simply protecting the company’s relationships, or is it actually preventing you from working in your field entirely?

 

This question matters more than you might think. In Ontario, the line between a non-solicitation clause and a non-compete clause can be surprisingly thin, and the difference has serious implications for your career. What appears on paper as one form of restraint may be something absolutely different and end up limiting your chances to earn a living later in life.

 

Knowing when a non-solicitation clause becomes a non-competition clause is not merely a matter of legal nuances. It is concerned with safeguarding your own professional future and understanding your rights under the Ontario law.

Non-Solicitation Clause

Consider a non-solicitation clause as a professional-level boundary. Once you have left the company, you are free to work at any place you would like, but you can never actively go after clients or employees of your former employer and take them with you.

 

Suppose that you are a sales representative and you developed relations with dozens of clients in three years of your work with Company A. Once you get hired by Company B, a non-solicitation clause will imply that you are prohibited from emailing, making phone calls, or contacting anyone on the LinkedIn network to persuade them to follow you at your new employer. However, and this is crucial, if a former client contacts you independently and asks to continue doing business with you at your new workplace, that’s generally acceptable.

 

The Supreme Court of Canada established the foundational test for evaluating non-solicitation clause enforceability in Canada in Elsley v. J.G. Collins Insurance Agencies Ltd., [1978] 2 SCR 916¹. In that landmark case, an insurance agency manager left after 17 years and took approximately 200 clients, roughly half the business, with him. The Court established three key factors to determine whether a restrictive covenant is reasonable: 

1. Did the employer have a proprietary interest worth protecting? In other words, did they have legitimate business assets (like customer relationships) that needed safeguarding?
2. Were the time period and geographic area too broad? A restriction lasting five years across an entire province would likely be unreasonable, while one year within a specific city might be acceptable.
3. Is competition in general hindered by the clause, or is it particularly the hindrance of solicitation? It is upon this third factor that so many clauses fall and become non-solicitation clauses or non-compete clauses.

The courts generally prefer non-solicitation clauses over non-compete agreements because they better balance business protection with individual freedom to work.

Non-Compete Clause

A non-compete clause operates very differently. Rather than restricting specific actions (like contacting former clients), it restricts where and how you can work entirely. It’s the difference between “don’t call these specific people” and “don’t work in this industry at all.”

 

Imagine you’re a software developer specializing in healthcare applications. A non-compete clause in Ontario might state that for two years after leaving your employer, you cannot work for any healthcare technology company within 50 kilometres. Even if you never contact a single client from your previous job, even if you’re hired purely for your technical skills, you’re still prohibited from accepting the position.

 

The decisive turning point is that, since October 25, 2021, most non-compete clauses are technically prohibited under Section 67.2(1) of the Employment Standards Act, ensuring that workers are not restricted in their mobility and career choices.

 

However, important exceptions exist:

• Non-compete agreements signed before October 25, 2021 (though courts remain reluctant to enforce them)
• Executives holding positions like CEO, CFO, COO, or President
• Situations where you sell your business and become an employee of the purchaser

Non-compete clauses that were signed prior to October 25, 2021, are not void by default, even though many courts in the past have been extremely reluctant to honour them. Pre-2021 non-compete clauses are almost never enforced, unless they satisfy serious legal requirements, and even in the case where an employer unlawfully fires you, the employer cannot typically count on a non-compete provision.

 

The rationale is straightforward: public policy favours competition and worker mobility. Keeping talented professionals out of the workforce entirely doesn’t just harm the individual; it harms the economy and deprives the public of valuable services.

Also Read: Are Non-Compete Agreements enforceable in Ontario?

When a Non-Solicitation Clause Becomes Non-Compete

This is where employment law becomes very tricky, and many employees and employers are caught off guard. What is on the label of the clause is of little importance compared to what it actually is. Courts do not simply read the first line of the heading, Non-Solicitation Agreement; they analyze the content and the working result of the limitation.

 

As the Ontario government clarifies, the proper terminology may not always be used in agreements. A solicitation clause may be provided with a heading of Non-Competition, but the content is not a competitive clause; it is a non-solicitation clause.

Let’s examine a real example from M & P Drug Mart Inc. v. Norton, 2022 ONCA 398 (CanLII)², where the Ontario Court of Appeal found a non-compete clause unenforceable because it was both ambiguous and overly broad.

 

Mr. Norton was a pharmacist who worked at Hometown IDA, which was later acquired by M&P Drug Mart. His employment agreement included a clause stating he could not be “concerned” with any “undertaking involving a business” that was “similar” to his employer’s pharmacy. When he left to work at another pharmacy less than three kilometres away, M&P Drug Mart argued he violated the restriction.

The Court found the clause unenforceable for several reasons:

 

1. Ambiguity problem: It was unclear whether the prohibited competition only included businesses dispensing prescriptions or extended to any business selling over-the-counter drugs, cosmetics, greeting cards, food, or shaving items that Hometown also sold but that were available in convenience stores, grocery stores, and big box retailers.

 

Consider the effect in practice: On a literal interpretation, Mr. Norton could have been barred in any department of a supermarket which also happened  to have a pharmacy somewhere in the premises. That is not safeguarding customer relationships; that is destroying careers.

 

2. Overbreadth problem: The non-competition clause was overly broad because it prevented Mr. Norton from having an interest in such businesses and from doing work unrelated to the practice of pharmacy, restrictions wider than reasonably required to protect the employer’s legitimate proprietary interests.

 

As the Court emphasized, courts are not empowered to rewrite restrictive covenants to reflect what they think is reasonable; they must evaluate what’s actually written.

 

The landmark case Lyons v. Multari, 2000 CanLII 16851 (ONCA)³, established that courts will generally not enforce a non-competition clause if a non-solicitation clause would adequately protect an employer’s interests.

 

In Lyons, two oral surgeons had an employment arrangement where Dr. Multari worked as an associate for Dr. Lyons. The agreement included a three-year, five-mile radius non-compete clause. When Dr. Multari left after just 17 months and opened his practice 3.6 miles away, Dr. Lyons sued for breach of contract.

 

The trial judge found the restriction reasonable and awarded damages. However, the Ontario Court of Appeal disagreed, holding that Dr. Lyons’ legitimate interest in protecting his referring dentists and patients could have been adequately protected by a non-solicitation clause. This was not one of those exceptional cases where a non-competition clause could be justified.

 

The Court noted several crucial points:

• Dr. Lyons did not have a proprietary interest in all possible referring dentists within five miles; only those who actually referred patients to him.
• Dr. Multari was a normal associate, not “the face” of the practice.
• A simple non-solicitation clause would have prevented Dr. Multari from soliciting referrals from Dr. Lyons’ existing referring dentists.
• The Court sought to maintain mobility for entry-level associates in various professions, recognizing that established professionals constantly recruit young associates and that many of these relationships naturally end after a few years.

The key transformation occurs when a clause that claims to prevent solicitation actually functions to eliminate competition entirely. Consider these examples:

 

Acceptable Non-Solicitation Language: “Employee shall not, for 12 months after termination, directly contact or solicit business from clients with whom Employee worked during the last two years of employment.”

 

Transforms into Non-Compete: “Employee shall not, for 12 months after termination, solicit or accept business from any clients or potential clients of the Company.”

 

The critical phrase is “accept business.” In Donaldson Travel Inc. v. Murphy, 2016 ONCA 649 (CanLII)⁴, the Ontario Court of Appeal found that the words “accept business” meant the clause went beyond a mere non-solicitation agreement and was therefore unenforceable.

 

Why does this matter? Because clients have agency. When you are great at what you do, you might have old clients who will refer to you in your new office. This is permissible in a non-solicitation clause; you have not approached anybody; they approached you. However, a provision that does not allow you to accept their business is, in fact, compelling you to reject even when clients are making contact. That is not safeguarding relationships; that is avoiding competition.

 

Another transformation occurs through excessive geographic or temporal scope. A non-solicitation clause in Ontario that prevents contact with clients “anywhere in Canada” for “five years” may be so broad that it functions as a non-compete, especially if your employer has clients nationwide. You couldn’t effectively work in your field at all without risking contact with someone who might be a former client.

 

In Martin v. ConCreate USL Limited Partnership, 2013 ONCA 72 (CanLII)⁵, the Ontario Court of Appeal held that restrictive clauses not allowing for a clear outside limit are unenforceable. Even vagueness is capable of turning an apparent non-solicitation provision into an inapplicable non-compete.

What Does This Mean for Employers?

To employers interested in safeguarding legitimate business interests, what Ontario courts are telling them is that precision is everything. Best practices for drafting enforceable restrictions:

1. Choose the least restrictive option. The courts will not allow the application of a non-competition clause when a non-solicitation clause would be sufficient to safeguard your interests.
2. Be specific about protected relationships. Rather than “all clients,” specify “clients with whom the employee had material contact during their employment.”
3. Define clear, reasonable boundaries. A one-year restriction is more likely to be enforced than a five-year restriction. Geographic limits should tie to your actual market reach.
4. Use unambiguous language. Ambiguous clauses that leave employees uncertain about what’s prohibited are more likely to be struck down. If a reasonably intelligent person cannot clearly determine what’s prohibited, courts may find the clause unenforceable.
5. Understand the new legal landscape. Since October 2021, non-compete clauses in Ontario have been largely prohibited for regular employees. Don’t include prohibited clauses hoping they’ll scare employees into compliance.
6. Document your proprietary interests. Maintain records of client relationships, specialized training provided, confidential information shared, and competitive advantages employees accessed.

Consider having employment agreements reviewed by legal counsel experienced in Ontario employment law. A well-drafted non-solicitation clause that’s enforceable provides far more protection than an overly aggressive non-compete agreement that courts will strike down entirely.

What Does This Mean for Employees?

For employees, understanding these distinctions protects your career mobility and helps you make informed decisions when reviewing employment contracts. Key points to remember:

1. Read beyond the label. A clause titled “Non-Solicitation” might actually function as a non-compete based on its wording. Focus on what actions are actually prohibited.
2. Most non-competes are now unenforceable. Non-compete agreements are prohibited for most Ontario employees as of October 25, 2021, with limited exceptions.
3. Understand “soliciting” versus “accepting.” A non-solicitation clause typically allows former clients to seek you out; you simply cannot be the one initiating contact.
4. Vague restrictions favour you. If you cannot clearly determine what the clause prohibits, courts will likely find it unenforceable. Ambiguity is interpreted against the party that drafted them (the employer).
5. Even enforceable clauses have limits. Where wrongful dismissal occurs, courts are more likely to find non-compete or non-solicitation clauses unenforceable on the basis that inequality in bargaining power exists.
6. Don’t just assume you’re bound. Many employees decline job opportunities because of restrictive covenants that wouldn’t actually be enforceable. Before turning down a great opportunity, seek legal advice.
7. Get it in writing early. Restrictive covenants added mid-employment without additional consideration may not be enforceable at all.

Imagine you’re considering a job offer from a competitor, but your current employment agreement has a non-solicitation clause. Prior to rejecting the opportunity, consider precisely what the wording of the clause is forbidden, which types of clients you actually dealt with, whether the limitation by geography and by time is sensible, and consult a lawyer about the enforceability of non-solicitation clauses in Canada.

 

Remember: Non-solicitation clauses must be reasonable in their temporal and spatial dimensions, and courts apply these principles critically because they’re reluctant to interfere with an individual’s ability to earn a living.

Conclusion

In Ontario, the line between a non-solicitation clause and a non-compete clause is not always clear, but the difference has enormous implications for both employers and employees. Labels are important, but substance is even more important. While labels matter, substance matters more. Courts look past headings to examine what restrictions actually do in practice.

 

The trick for the employers is precision: write the narrowest restriction that covers the legitimate interests of the employer. The trick for the employee is awareness: what exactly are you getting into, and many restrictive covenants are not as much bark as they are bite.

 

With the dynamic legal environment, especially with Ontario’s prohibition on the majority of non-compete agreements, keeping up with the changes is a way of safeguarding the interests of everyone. The aim is not to keep the employees in the net or to deny the employers the right to cushion their businesses, but to make sure that the restrictions are sensible, just and warranted.

 

Pacific Legal can assist you in these complicated issues, whether you are the employer preparing employment agreements or the employee reading a contract. Having worked in the field of employment law, our skilled attorneys know the ins and outs of restrictive covenants and can offer realistic advice to your case.

 

Contact Pacific Legal today to ensure your employment agreements protect your interests while complying with Ontario law.

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