Heres What You Need to Know. The [employers] evidence is, at turns, speculative, exaggerated, unsupported, or not forthright.. If you are an employee or employer, I can help you with any contract-related or other workplace issue. Why Enforcement on Personal Guarantees Can Be so Challenging for Creditors, Phantom Footnotes: First Canadian Court Issues Direction on the Use of Artificial Intelligence in Court Submissions, Canada Recognizes the Right to a Healthy Environment (and Other Amendments to the. A non-compete agreement is just what its name implies: an agreement between two parties in which one (or both) agrees not to compete for a certain period of time. These employers may unknowingly, and perhaps undeservingly, be sitting on a ticking time bomb. We know that many businesses are not sole proprietorships, but rather are owned by shareholders who may have other layers of corporate status, and many companies offer equity to regular employees as part of their total compensation packages. There may be one further wrinkle, which involves historical non-competes remaining intact. [3] See Employment Standards Act, 2000, SO 2000, c 41, s 1(1). This is an open question given that the granting of the equity is very much tied to employment, and often performance in employment. Jeff is interested in Canadian business, technology and law, and this blog is his platform to share his views and tips in those areas. But opting out of some of these cookies may affect your browsing experience. As we reported back in December 2021, one of the changes brought about by the Ontario Working for Workers Act (Act) was to ban non-compete agreements, Employee + Non-Compete = Unenforceable Where a non-solicitation clause would be inadequate the court will then examine the scope of the non-compete clause to ensure that it is no broader in terms of spatial, temporal and activity restrictions to protect the interests of the claimant. This blog is for educational purposes only and is not intended as legal or other professional advice. DCY Professional Corporation Chartered Professional Accountants. WebNon-Compete Clauses Generally Non compete clauses or a covenant not to compete appear in commercial contracts and are designed to protect one party by preventing the other party from competing during and after the term of the contract for a set period of time. The BC Court of Appeal agreed with the trial court that the non-compete clause was ambiguous and for this reason unenforceable. In other words, if an employer changes, after October 25, 2021, any material term of employment, which may include salary, incentive compensation, termination provisions, work location, etc., of an existing employee's employment and/or requires an existing employee to sign/acknowledge/accept/or receive a notice of a change in terms, and the employer still intends to rely on the balance of the existing terms entered into prior to October 25, 2021, there is significant risk that WWA is triggered, and the non-compete provision in the pre-October 25, 2021 will be deemed void, and therefore, risk the enforceability of other provisions in the agreement. Also, notably, in2006515 Ontario Inc. (c.o.b. The fact my drivers are controlled by a rating system and had to follow my automobile associations rules is also persuasive in finding an independent contractor relationship. Are You Tired Of Losing Potential Patients To Online Search Results? The Ontario government introduced legislation on October 25, 2021, which if passed, will prohibit non-competes in employment agreements, mandate that employers
Soni Law Firm is a boutique litigation firm serving employees, employers, and trade unions across Ontario. [1] Bill 27, Working for Workers Act, 2021, 2nd Sess, 42nd Leg, Ontario, 2021 (assented to 30 November 2021). Whether the nature of the employees work meant that the employee had influence over clients in the sense that the clients relied upon the employees advice, or trusted the employee. Embed. There will be a non-compete in any employment agreement. Finally, unless the employee in question is exempt from the prohibition, avoid making a non-compete part of a settlement or severance package. The court will look to see whether a non-compete clause is necessary to protect a legitimate interest or whether a non-solicitation clause would suffice. My drivers can pick up any other stranded car not dispatched from the automobile association, but they never do. On June 7, the New York Senate, by a vote of 40-21, passed a prohibition on non-compete agreements in a modified bill, 3100-A (Bill). On October 25, 2021, the Ontario government introduced Bill 27, Working for Workers Act, 2021 (Bill 27). As did the BC Court of Appeal, the Ontario Superior Court emphasized that a covenant not to compete in the employment context is a restraint of trade and thus prima facie void as a general rule. inWiebe Door Services Ltd. v. MNR, [1986] FC 553: Of course, the organizational test of Lord Denning and others produces entirely acceptable results when properly applied, that is, when the question of organization or integration is approached from the persona of the employee and not from that of the employer, because it is always too easy from the superior perspective of the larger enterprise to assume that every contributing cause is so arranged purely for the convenience of the larger entity. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the workers opportunity for profit in the performance of his or her tasks. 5 years). Contractors need to seek legal advice to determine if they are legally bound by non-competes, or if they are actually employees for legal purposes who could be re-classified and, therefore, entitled to various legal protections under the ESA. But, as soon as the owner renovates that building, it must be brought into compliance with present day zoning by-laws.
Update on Bill 27: Ontario bans non-competes.
Get updates delivered right to your inbox. [1] Ontario, Labour, Training and Skills Development, News Release, Ontario Creating a Better Future for Workers: Province to Introduce Legislation to Help Make Ontario the Best Place to Work, Live and Raise a Family (25 October 2021), Ontario Newsroom. In PointOne Graphics Inc. v. Roszkowski et. Send. Learn how to navigate the coming changes. HPV-Related Head and Neck Cancers. For example, Ontario courts would rarely enforce a non-competition covenant against a mere employee (i.e., someone who is not a senior executive) and especially where a confidentiality or non-solicitation covenant would have adequately protected the employers interests. Therefore, they likely took few or no steps to try to properly protect themselves from unfair competition through properly drafted non-solicit and other legitimate contractual provisions. Moreover, the Supreme Court of Canada inMcCormick v. Fasken Martineau DuMoulin LLP, suprarecently commented on the indicia of an employment relationship: [23] Deciding who is in an employment relationship for the purposes of the Code means, in essence, examining how two synergetic aspects function in an employment relationship: control exercised by an employer over working conditions and remuneration, and corresponding dependence on the part of the worker. Ottawa Lawyer-dental Pro Unveils Software That Boosts Practice Performance. Or because the clauses were unreasonable, overly broad, or ambiguous. The non-compete clause restricted the employee, for a period of up to 12 months, from directly or indirectly provid[ing] services, in any capacity to any person or entity that provides products or services or is otherwise engaged in any business competitive with the business carried on by the Company or any of its subsidiaries or affiliates at the time of his termination. The Act automatically amends the ESA so that no employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement (defined as an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employers business after the employment relationship between the employee and the employer ends.) 38. Jeff is a frequent lecturer on employment law and is the author of an employment law textbook and various trade journal articles. Time will tell if the new law creates some challenges for both employees and employers. Learn how to navigate the coming changes. Of note, with respect to the organization test, the Court referred favourably to the following statement by MacGuigan J.A. If a call is rejected, the drivers must supply a reason. In this post, I discuss the new prohibition against non-compete agreements. 1976, Dr. Jack Newton Dentistry Professional Corp. v. Towell, [2005] O.J. We also use third-party cookies that help us analyze and understand how you use this website. The amendment defines "non-compete agreement" as an "agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer's business after the employment relationship between the employee and the employer ends."[2]. Unfortunately, if youre an independent or dependent contractor, the non-compete in your contract may not be illegal since the ESA only applies to employees. Take our survey. The intention of the parties is relevant only to the extent that it is reflected in the actual arrangements they have made with each other in structuring their relationship. We also do not yet know whether employers will be prohibited from tying non-compete provisions to ownership of equity. Fasken has extensive experience with advising and assisting clients, across a wide variety of industries, regarding how to protect their business interests, including, where appropriate, through injunctions and other extraordinary remedies. The relative weight of each will depend on the particular facts and circumstances of the case.
The employer sued to and tried to enforce the non-compete clause by bringing a motion for an interlocutory injunction. The second and final exception under WWA deals with situations where there is a sale of all or part of a business, which includes a lease, and the seller becomes an employee of the purchaser immediately following the sale. In many cases, an employer will suggest or even order that, in an effort to save money, a person who would otherwise be an employee should be called anindependent contractor. It started as a law firm blog but is now a Canadian general interest blog. The temptation to use expansionary language and words of association should be resisted. No. Current or prospective customers was defined in the agreement as an individual or entity with which [the employee] personally had direct or indirect contact, or access to conduct confidential information about, during the last two years of [his employment]. But this would restrict the former employee from accepting work from someone he may never have had contact with EVEN IF he had access to confidential information about them. While the courts, when applying the common law, have traditionally favoured fair competition and have viewed non-competes in most employment contracts as restraints on trade, these agreements are increasingly viewed by society at large as inhibiting the free movement of labour, and as oppressive to low-income workers who pose no threat to their former employers. 4:22 A caller from the Employment Law Show: I was restructured out of my managerial position last week at a large company after 8.5 years. In turn, in many cases, employers set up sham independent contract arrangements to shield themselves from these above-noted employment law protections. ), independent contractors are not. What about associate/principal relationships, which are typically framed as an independent contractor (associate) providing services to a client (principal)?. Web Label as an independent contractor a commissioned salesperson who receives the majority or all of his or her income from the sales of the companys products, unless factors support such a designation; Insert a non-competition clause into the contract, unless absolutely necessary for the companys protection. Be sure to ask your clients for all employment agreements and policies prior to giving legal advice on hiring and firing to determine if there are illegal non-competes in existence. The documents should then be properly replaced with legal, enforceable provisions that protect you, instead of harming you. The foregoing provides only an overview and does not constitute legal advice. In fact, there has already been an influx of articles and bulletins posted proclaiming that employees no longer have to respond to emails after work.this is not necessarily so.it will depend on the individual workplace, and what the employer elects to include in the policy. "Non-compete agreement" is defined in the ESA. Non-solicitation covenants are not prohibited by the new legislation; however, the long-established case law in Ontario makes it clear that the courts will only enforce such a restrictive covenant if it is demonstrably reasonable (e.g., in terms of its scope, duration, etcetera). It also does not apply to gig workers The Court reviewed the various tests which have been articulated at common law over time: the control test; the fourfold test; and the organizational test or integration test. Not much has changed. In Camino Modular Systems Inc. v. Kranidis,5 a VP for a raised flooring business signed an employment agreement that prohibited him from competing within North America for a period of 12 months after leaving. Aside from the exceptions described above, non-compete agreements are prohibited, and in violation of the ESA;there is no "grandfathering" or transition period. with the authors. The Court noted the difficulties which have emerged from the application of each of these tests. [bold added]. Recent court decisions in BC and Ontario provide a cross country lesson to employers about the dangers of overly Each member and affiliate is an autonomous and independent entity. Readers are cautioned against making any decisions based on this material alone. The issue to be determined is whether my drivers are an employee or an independent contractor. Accordingly, where there is a change in terms, we recommend incorporating deletion of the prior non-compete language as part of the amendment. On November 30, 2021, Bill 27, Working for Workers Act, 2021 passed the third reading stage, and many of its features will become law upon Royal Assent. In my view, neither should courts read in or imply a restrictive covenant into an employment contract where the parties have bargained for one, and then allowed it to lapse.12. So where do things currently stand in Ontario? The more the work life of individuals is controlled, the greater their dependency and, consequently, their economic, social and psychological vulnerability in the workplace: . Under the. Under the new legislation in Ontario, the Employment Standards Act, 2000 (Ontario) (the ESA) now prohibits an employer from entering into an agreement with an employee that includes a non-competition clause that restricts the employee from engaging in any . Someone who contracts to do a specific piece of work, and provides his or her equipment, and executes the work under his or her terms, without being subject to orders of work is generally anindependent contractor, not an employee. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. These confidentiality covenants allow businesses and employers to exercise control over the dissemination and use of their trade secrets and confidential information by setting out express terms regarding what constitutes confidential information and the manner in which such information may be used and disclosed. Bettina Burgess
Nothing on this website should be construed by the user as legal advice. This remains a risk; however, for the time being, and until there is further clarification on this issue by regulation or court/tribunal decision, we believe that both the rules of interpretation, and guidance from the Ministry of Labour militate in favour of not applying this provision to any non-compete agreements entered into prior to October 25, 2021. Experienced legal guidance is recommended. Jeff is a lawyer in Toronto who works for a technology startup. I do not supervise and check in with the drivers. This is an option that some businesses typically consider because they want to protect their A non-compete agreement is a legally binding contract that prohibits an independent contractor from competing with the company who engaged it throughout the term of the contract and, typically, for a certain amount of time afterwards. The definition of Executive under the newly amended ESA is any person who holds the office of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position. (See second bullet 2 under Trouble Ahead? below for an explanation of this exemption and some future problems.). Further, the Court stated that the non-compete clause was too ambiguous and overly broad. Bill 27 amends and impacts the Employment Standards Act, 2000 (the ESA) with two important changes: a ban on non-competition or non-compete agreements and upholding an employees right to disconnect from work. Also, the definition of competitive business was held to be ambiguous since, as the court observed, it would be impossible at the time of hiring for the employee to know the number and kinds of other businesses the employer might have or acquire during the period of employment. In other words, if a seller of a business is a corporation whose shares are held by several individuals, those individuals who hold a substantial percentage of the shares, will fall under this exception, if they become employees of the purchaser following the sale. Importantly, the prohibition does not apply to commercial agreements (i.e., outside the employment context), nor does it apply to agreements with independent contractors (or other individuals who are not employees under the ESA).[3]. 2021 Decision: This is a blog by Jeff Dutton. It would be unlikely that a Michael Carabash, Are Non-Compete Clauses Legal?, Ontario Dentist, September 2016, pp. Waterloo Region, Nicole Hilliard
As the IRIS and Ceridian cases make clear, such language may only serve to introduce an element of ambiguity and broaden the scope of the non-compete clause beyond what is intended to be covered, and thus in the end risk achieving no protection at all. [4] Bill 27, Working for Workers Act, 2021, 2nd Sess, 42nd Leg, Ontario, 2021, at Part VII.0.1, s 21.1.1 (assented to 30 November 2021). The non-compete provisions came into effect on December 2, 2021. These cookies do not store any personal information. The IRIS and Ceridian cases provide very useful current judicial road maps which contain important guidance for employers. Accordingly, with the rise of the gig economy, it has now become a crucial question of whether someone is an independent contractor or an employee. Canada: Bill 27 Prohibition On Non-Competition Clauses In Ontario Employment Contracts Amended To Include Exception For Executives 07 December 2021 by Susan Garvie and Jason Wadden Goodmans LLP Your LinkedIn Connections with the authors Summary On November 30, 2021, Bill 27, Working for Workers Act, 2021, Dr. Park resigned her position with IRIS in 2015 and set up her own optometry practice within 5 kilometres of the IRIS clinic.
Furthermore, advise your employer clients to ask you to review all such documents as soon as possible in case they are relied upon without first seeking your advice. If you would like to discuss this article further or have any questions, please contact the authors or a member of our Employment, Labour & Equalities Group. All rights reserved. Park), 2017 BCCA 301, the BC Court of Appeal upheld a BC Supreme Court decision that a non-compete clause was too broad and ambiguous and thus unenforceable. Based on how it was drafted, it could restrict the former employee from taking any position at all in a competing business, including a position in which he is not actually competing.. No. dont try to take customers with you when you leave!) On June 7, the New York Senate, by a vote of 40-21, passed a prohibition on non-compete agreements in a modified bill, 3100-A (Bill). [27] Control and dependency, in other words, are a function not only of whether the worker receives immediate direction from, or is affected by the decisions of others, but also whether he or she has the ability to influence decisions that critically affect his or her working life. This could entitle the independent contractor to more WWA allows employers to enter into non-competes even after October 25, 2021 with Executives, which the Act defines as "any person who holds the office of chief executive officer, president, chief administrative officer, chief operating officer, chief financial officer, chief information officer, chief legal officer, chief human resources officer or chief corporate development officer, or holds any other chief executive position.". In the case of Martin v. ConCreate USL Limited Partnership, 2013 ONCA 72 which made it to the Ontario Court of Appeal, it was held that restrictive clauses (non While several US States have enacted legislation prohibiting non-competes, Ontario is the first of the Canadian Provinces to do so. As shown above, the non-compete clauses failed because the employer had no legitimate proprietary interest worth protecting. All rights reserved. In commercial agreements (e.g., between vendors and purchasers), the courts were, and presumably will continue to be, more willing to enforce reasonable non-competition covenants. You may, though, have an out Start here. 9 minute read 16 non-competition, or non-comp) agreement or provision provides that an ex-employee will not work for, or start, a business that competes with the former employer for a certain period, and usuallybut not alwayswithin a defined geographical location. Ontario courts have long differentiated between commercial (e.g., sale of a business) and employment contexts concerning non-competition provisions, and have long taken a much less tolerant view of non-competition covenants in employment agreements. First, the Court found that the employer couldnt establish a proprietary interest worth protecting. Drivers are rated by customers and must maintain a certain rating to work with me. A noncompete agreement is a binding contract that prevents an independent contractor from competing with the employer during the contract and a set period of time afterwards. Gardiner Roberts LLP. All rights reserved. In addition, a non-competition covenant was more likely to be enforced in the case of a senior management employee, for example, where the senior employee had discretionary power over important aspects of the business. Bettina Burgess
Given that the legislation imposes no specific requirements, employees may perceive a disconnect between the title of the provision and what is actually inserted into the policy by the employer if there are still requirements to answer emails after core hours or to work on a weekend. 39. 11 January 2021. by James R.G. No. The driver can accept or reject a call. While published "guidance", even from the Ministry of Labour, is not binding, meaning tribunals/courts may still interpret the legislation in a different manner, we are of the view that this provision should be taken at face value, and employers may reasonably take the position that any non-competition agreements entered into with their employees prior to October 25, 2021 will not automatically be deemed void. If competition by the employee has already occurred, whether there is evidence that clients have switched their custom to him, especially without direct solicitation. New Poll Results: The Current State of Dental Staffing in the U.S. Schulich Mini-MBA: Dentist Business Leadership Program 2022 Bursary Application for Oral Health Reader, ClearDent is Pleased to Announce a Strategic Partnership with Unleashing Dentistry, Maxim Software Systems Announces Acquisition of U R DU Appointments, 9 Questions Dentists Should Ask Their Financial Management Team, Canadian Small-Business Owners Struggle to Make Cryptocurrencies Part of Daily Commerce, Canada Ranks Third for Ransomware Attacks, Dental Staffing Shortage Continues as Dentist Offices Return to Pre-Pandemic Operations, Nominations Now Open for 2021 Leaders in Practice Awards, Henry Schein Acquires Majority Interest in eAssist Dental Solutions, The Next Federal Budget Could be a Dentists Tax Nightmare: Use it or Potentially Lose it. Immediately review all employment contracts, employee agreements and policies with an experienced employment lawyer to determine if you have any non-compete provisions lurking in them that are unrelated to the sale of a business, or which apply to non-executives. Gowling WLG is an international law firm comprising the members of Gowling WLG International Limited, an English Company Limited by Guarantee, and their respective affiliates. For more information or to discuss a particular matter please contact us. What is a non-compete for independent contractors? Accordingly, even if clear and unambiguous, the clause must still meet the tests of being reasonable as between the parties and not contrary to the public interest. A prohibition against non-compete agreements with employees; The requirement to develop a policy dealing with an employee's right to disconnect from work; Further protections for foreign nationals; Licencing requirements for temporary help agencies, The requirement to allow delivery drivers access to washrooms; and. See for example: Lyons v. Multari 2000 CanLII 16851, H.L. WebNon compete agreements state that one party agrees not to work for a competitor or specified industry for a designated period of time and location. the employee is the president of, or holds any chief executive position within, the employers business. The employee resigned to start his own competing business. Think of this like a building that no longer complies with certain zoning by-laws. The former employee also had no confidential information about the employers projects that could harm the employer in those 12 months. by N. David McInnes and Stefanie Di Francesco. The intention of the parties is relevant only to the extent that it is reflected in the actual arrangements they have made with each other in structuring their relationship. Now I know what youre thinking: But all of these recent Ontario cases only dealt with purely employment relationships. These may be some of the very people the law is trying to protectbut they are left out. An overview of the Court of King's Bench of Manitoba's practice direction on the use of artificial intelligence in the preparation of court submissions.
and includes a person who is an employee; (a) an owner, proprietor, manager, superintendent, overseer, receiver or trustee of an activity, business, work, trade, occupation, profession, project or undertaking who has control or direction of, or is directly or indirectly responsible for, the employment of a person in it, and. WebLitigating Across Ontario. However, in many other cases, someone wants to be an independent contractor because he or she wishes to render employment-like services and yet, for tax treatment, wants to be classified as anindependent contractor. I issue each driver a vehicle (which they pay me for), uniform and ID, and I pay for insurance and maintenance. In 2016, I wrote about this topic.2 After reviewing the jurisprudence, I concluded that, in a purely employment or quasi-employment context (e.g. Normally, this is more than one business which is why non compete agreements cannot 4415. The principal dentist could have no interest in referring dentists that stopped or never referred to him. It can be between an employer and an employee, or an employer and an independent contractor, or even between two companies. As it turns out: only sometimes. The answers to these questions represent the compass for determining the true nature of the relationship. If employers plan to continue to incorporate non-compete provisions for executives or as part of a transaction, we strongly recommend that such provisions be included in an entirely separate agreement, and certainly not incorporated directly into the main employment agreement. IRIS commenced legal proceedings to prevent Dr.Park from setting up her practice at that location. 1976, Dr. Jack Newton Dentistry Professional Corp. v. Towell, [2005] O.J. Similarly, if the plaintiff cannot demonstrate irreparable harm, the agreement cannot deem the plaintiff to have done so.9. They are often surprised when I tell them that I dont recommend including one in any new contract I am asked to prepare for them. In many cases, they had no intention of even trying to enforce the non-compete for which they will now be fined. Should you require legal advice for your particular situation then please feel free to contact us to arrange for a consultation for a legal matter, or learn more here about booking a mediation.