An enforceable non-solicitation clause can be an effective way for employers to avoid the solicitation of their customers and valued workers by former employees. Whether a non-solicitation clause is legally enforceable depends on whether the clause is reasonable to the situation. While this is a difficult task, the Ontario Court of Appeal’s decision in Smilecorp Inc. v. Pesin, 2012 ONCA 853 (“Smilecorp”) provides some helpful commentary on what types of non-solicitation clauses Canadian Courts are willing to enforce.
In Smilecorp, the Ontario Court of Appeal considered the enforceability of a non-solicitation clause signed by Pesin, a dentist. Pesin, the appellant in the action, had agreed with the respondent, Smilecorp Inc. (“Smilecorp”) that he would run his dental practice out of the dental centre owned and operated by Smilecorp. After two years of operating under the arrangement, Pesin left Smilecorp’s centre and opened a competing dental practice approximately five (5) kilometers away. Before his departure, Pesin made copies of Smilecorp patient information with the intent to transfer their business over to his new location.
While Pesin worked at Smilecorp’s centre, he was subject to a management agreement. The agreement provided that upon termination of the agreement, any patient treated by Pesin would be transferred to a successor dentist at Smilecorp along with all of the goodwill associated with the dental practice. However, the agreement expressly provided that patient records should be transferred to the dentist of their choice upon request.
The agreement also contained a non-solicitation clause. The clause provided that Pesin was not to “solicit, contact, invite or encourage either directly or indirectly in any manner whatsoever” Smilecorp patients. Further, Pesin was not to send any flyers or advertising announcing his new business to the patients at Smilecorp.
After Pesin left Smilecorp’s centre, Smilecorp applied for an injunction to restrain Pesin from soliciting his former patients and from sending them communications about his new practice. The application judge granted the injunction and ordered that Pesin return all of the confidential patient information that he had removed from Smilecorp’s centre. This decision was upheld by the Ontario Court of Appeal.
The Court of Appeal held that the non-solicitation clause was reasonable and enforceable, as the clause merely prevented Pesin from communicating directly with the patients he treated at Smilecorp’s centre. The clause did not prevent Pesin from advertising and soliciting patients for his new business in general. Nor did the clause restrict where Pesin could establish his competing practice.
The Court of Appeal rejected Pesin’s argument that the management agreement asserted a proprietary interest in the patients of the centre in violation of the Dentistry Act. Instead, the Court held that the management agreement asserted a proprietary interest not in the patients of the centre, but in the goodwill occasioned by Smilecorp’s management of the centre.
The Court of Appeal also rejected Pesin’s argument that the management agreement violated the Regulated Health Professionals Act, the Dentistry Act, the Professional Misconduct Regulations and the Practice Advisories issued by the Royal College of Dental Surgeons of Ontario, by restricting a patient’s right to be treated by the dentist of his or her choice. The Court held that the management agreement provided for the immediate and orderly delivery of patient charts to a new dentist and, as such, did not restrict the ability of the patient to choose a dental provider or to receive the information in his or her dental chart.
Some key takeaways from the Court of Appeal decision in Smilecorp to consider when creating a non-solicitation clause include:
- try to narrow the scope of the limitation, as clauses that restrict an employee from soliciting or advertising generally are unlikely to be enforced;
- avoid implementing geographic restrictions on an employee’s ability to establish a new business;
- assert a proprietary interest in the goodwill of the employer’s business model and not in the patients, clients or customers served by that model; and
- provide for the transfer of customer or patient information on the election of the customer or patient.