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. 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. In both employment and commercial contexts, express contractual provisions remain one of the most effective and proactive ways to protect trade secrets, confidential information and other legitimate business interests. Not much has changed. This legislation really changes nothing in that regard and frankly, codifies what has historically been the practice of our courts. The amendments received Royal Assent on December 2, 2021; however, different parts of the Bill will come into effect at different times. On December 2, 2021, it became law. WebHow to tell who is an independent contractor Employee or independent contractor: Common misconceptions Volunteers Interns and trainees Tell us what you think about the information on this page and how youre using it. Posted on Published: June 12, 2020- Last updated: April 14, 2023. The use of this website does not create a lawyer-client relationship, or any kind of business relationship. Para. In the commercial context, a purchaser of a business may also use a non-solicitation covenant to restrain the vendor from later improperly taking away the businesses potential customers, existing clients, and employees. Aside from the exceptions described above, non-compete agreements are prohibited, and in violation of the ESA;there is no "grandfathering" or transition period. Michael leads DMCs annual Caribbean dental mission trips (Grenada, Jamaica and Turks & Caicos). This is an option that some businesses typically consider because they want to protect their 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. Meet the Authors. If youre wondering what could constitute exceptional circumstances warranting enforcement, the Manitoba Court of Appeal in Winnipeg Livestock Sales Ltd. v. Plewman14 shed some light on this by noting the following relevant factors: To date, I have found no Canadian court case where a non-compete in a purely employment or quasi-employment context is enforced on the grounds of exceptional circumstances., Now, with that said, Canadian Courts have enforced non-compete clauses where someone sells their business and agrees not to compete. Independent contractors have more freedoms than traditional employees but also have fewer employment-related benefits and protections. While this may be an appropriate way of deterring employers from inserting non-competes into new employment contracts and other agreements, it may cause serious problems for employers with non-competes entered into on or after October 25, 2021. 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. It happens daily. For a fixed term Until a specified date. This is an important development because it has often been cold comfort for an employee when they are told that a judge likely wont enforce the non-compete clause in their contract if the case goes to court. No. The Benefits GA4 Can Bring to Your Dental Practices Digital Marketing Effort, Move Your Practice Forward with Industry-defining Trends: Leverage Lessons from the International Dental Show, DIAC Introduces Their New Executive Director Hafeeza Bassirullah. The employer must provide every employee with a copy of the written policy within 30 days after it is prepared. Canadians Awareness of Open Banking is Low But Does it Matter? Manifestly, there is a lower likelihood of a power imbalance existing between the parties in such a context as compared to the employment context. Copyright 2023 McMillan LLP. For instance, independent contractors are not entitled to reasonable notice, minimum wage, the right to refuse unsafe work, statutory holidays, or maternity leave, among other entitlements. Employers have 6 months from December 2, 2021 (i.e., June 2, 2022)to complete its policy. While there is no indication from the express language of the amendment that the mere inclusion of a non-compete provision will render unenforceable other restrictive covenants, we do recommend that employers review their suite of agreements to remove any language prohibiting competition, and issue a notice to employees who do not fall within the exceptions that any non-compete provisions in their existing agreements will not be enforced by the employer. For further reading, see my article, independent contractor or employee? 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 As a business owner, you dont enjoy the same presumption of an unequal playing field that underpins policy around non competes and similar restrictive agreements. Greco Health Shack), [2005] OESAD. Staebler Company Limited v. Allan, 2008 ONCA 576 (CanLII), Donaldson Travel Inc. v. Murphy et al, 2016 ONSC 740 (CanLII), reaffirmed in 2016 ONCA 649 (CanLII), See for example: Button v. Jones, [2001] O.J. No. If youre thinking about selling, contact Michael at michael@dentistlawyers.ca or 647.680.9530. The temptation to use expansionary language and words of association should be resisted. Gowling WLG International Limited promotes, facilitates and co-ordinates the activities of its members but does not itself provide services to clients. By continuing to use our website, you are agreeing to our use of cookies as described in our. You may, though, have an out 03 December 2021 Articles On November 30, 2021, the Ontario legislature passed Bill 27, Working for Workers Act, 2021 [1] an omnibus bill introduced by the 2023 Newcom Media Inc. All Rights Reserved. Typically, a non-compete (a.k.a. If you have questions about protecting your confidential business information and trade secrets, please contact a member of Faskens Trade Secrets & Data Security team. In many cases, they had no intention of even trying to enforce the non-compete for which they will now be fined. 2023 Gowling WLG International Limited. The distinction between employees and independent contractors has always been an important one in Ontario because while employees are covered by the protections of the Employment Standards Act, 2000 (e.g. 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. 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, Soni Law Firm is a boutique litigation firm serving employees, employers, and trade unions across Ontario. If they appear in the same section, or paragraphs as non-solicit and other legitimate employer-protection provisions, then the now illegal non-compete could potentially taint related provisions rendering them unenforceable as well (. We have years of experience representing people in non compete lawsuits in Massachusetts state and federal courts, as well as responding to cease and desist letters, and we would be happy to help. 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. What about associate/principal relationships, which are typically framed as an independent contractor (associate) providing services to a client (principal)?. 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. I have more than 25 years experience as an employment lawyer with satisfied, repeat clients. [3] See Employment Standards Act, 2000, SO 2000, c 41, s 1(1). [2] Bill 27, Working for Workers Act, 2021, 2nd Sess, 42nd Leg, Ontario, 2021, at Part XV.1 s 67.1 (assented to 30 November 2021). Other times, some people may be motivated to classify themselves asan independent contractorso they can claim deductions for expenses. Under section 5.1 of the ESA, it is illegal for employers to misclassify their employees as independent contractors. Well, this takes us back to the beginning of this article: when its a purely associate/principal relationship (no purchase and sale involved), Ontario Courts have taken the same approach as an employer/employee relationship. Starting your own blog? However, for several reasons, employers still 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.. Experienced legal guidance is recommended. They would prefer to avoid working for or starting competitive businessesoften for a year or longereven though, when working for the competition, they would never breach their actual legal obligations (either in their contract or under the common law, or both) like disclosing trade secrets or customer lists, or actively soliciting the business their former employers clients for a period. Our structure is explained in more detail on our Legal Information page. The former employee also had no confidential information about the employers projects that could harm the employer in those 12 months. We are of the further view, however, that this will likely not be interpreted to include the multitudes of employees who are granted equity in the business as part of their compensation and continue to be employed post sale. Greco Health Shack), [2005] OESAD. 34 (January 12, 2005) (cited inProfessional Recovery Equipment Inc. v. Mootoo, supra),the Ontario Labour Relations Board commented on the intention of the parties concerning independent contract status: Finally, it is important to note that whether or not an individual is an employee or independent contractor is a question of law to be determined after consideration of all the relevant factors. 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. to protect an employers legitimate proprietary interests.3, Meanwhile, Courts were more inclined to come to a purchasers aid in enforcing a non-compete if they just paid oodles of money to buy a business and the seller agreed not to compete so as to help preserve the business goodwill.4. But then the Court concluded that the non-compete here (one that the employer was trying to implicitly rely upon based on a decades old and expired employment agreement) is a fiction. Per the Court: courts should not be reading restrictive terms into employment contracts when the parties have not bargained for them. Accordingly, the message seems clear: broadening a non compete clause by the addition of words of association such as in conjunction with or concerned with or related to or associated with will not necessarily improve the clause and in fact may very well lead to precisely the opposite result, which seems to have happened in this case. On December 2, 2021, Ontarios Bill 27, Working for Workers Act, 2021 [PDF], received Royal Assent, making Ontario the first jurisdiction in Canada to ban non-competition agreements, in the context of employment, via legislation. 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. activity that is in competition with the employers business after the employment relationship between the employee and the employer ends, unless: Unless one of these exceptions applies, the new statutory prohibition precludes non-competition clauses in agreements entered into with employees on or after October 25, 2021. The IRIS and Ceridian cases provide very useful current judicial road maps which contain important guidance for employers. 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. All rights reserved. or watch this video by my colleague: Here is the background of my hypothetical tow truck business. Drivers are rated by customers and must maintain a certain rating to work with me. Nothing on this website should be construed by the user as legal advice. principal/associate context) non-competes are generally unenforceable except in exceptional circumstances (more on that below). 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. Use of this blog does not create a lawyer-client relationship. The legislation is not clear as to whether the exception applies to these circumstances. 2021 Decision: 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.". It is significant to note, however, that this does not mean that all non-competition agreements entered into prior to October 25, 2021 will be enforced. First, employers must identify some legitimate interest which requires the protection of a non-compete clause that cannot be protected by a non-solicitation provision. Interestingly, the court commented on the non-compete clause in the original employment agreement, stating that it was noteworthy that it contained the simple restriction that an optometrist could not practice optometry within 5 kilometres of the IRIS location for 3 years. The law of independent contractors in Ontario The line between an employee and an independent contractor is sometimes difficult to determine, and it is [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. We must bear in mind that it was with respect to the business of the employee that Lord Wright [inMontreal v. Montreal Locomotive Works Ltd.1946 CanLII 353 (UK JCPC), [1947] 1 DLR 161] addressed the question Whose business is it? [Emphasis added [by the Supreme Court of Canada].]. Any future harm is purely speculative. Michael Carabash, Are Non-Compete Clauses Legal?, Ontario Dentist, September 2016, pp. sick pay, maternity leave, etc. Fourth, the clause purports to restrict the employee from accepting work from his personal contacts who may have had nothing to do with the employer at any time. 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. The principal dentists interest in protecting his existing referring dentists could have been protected with a simple non-solicitation clause. In these circumstances, a court or labour board would likely conclude that my drivers are employees and not independent contractors (indeed, I argued a very similar case with the same outcome). The Ontario Superior Court of Justice reiterated the jurisprudence on the enforceability of non-compete clauses (i.e. Learn how to navigate the coming changes. This contained a much broader non-compete clause prohibiting Dr. Park from competing either directly or in partnership or in conjunction with any persons or entities which were carrying on, engaged in, interested in or concerned with a business that competed with IRIS. However, if a non-compete is part of an agreement of purchase and sale or an associate agreement that forms part of a purchase/sale transaction, they tend to be more enforceable.2 But why? Unfortunately, WWA does not define "seller". 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. But, as soon as the owner renovates that building, it must be brought into compliance with present day zoning by-laws. On May 24, 2023, Minnesota Governor Tim Walz signed into law a bill banning nearly all post-termination non-compete agreements with employees 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. The nature of the business with respect to whether personal knowledge of the clients confidential matters is required. In PointOne Graphics Inc. v. Roszkowski et. I make the drivers work five 12 hours shifts per week. The employer lost the motion and was ordered to pay the former employee $47,488.82 in costs. The principal dentist could have no interest in referring dentists that stopped or never referred to him. Some employees may agree to provisions that they believe are non-competes, and therefore unenforceable but are actually non-solicit or other types of restrictive covenants that may turn out to be perfectly legal. The new statutory prohibition codifies and re-enforces important common law principles regarding non-competition covenants in employment agreements. We also use third-party cookies that help us analyze and understand how you use this website. Fast forward: Navigating change in Canada's new age of employment. Employee + Non-Compete = Unenforceable Readers are cautioned against making any decisions based on this material alone.