Non-Compete Clauses vs. Non-Solicitation Clauses: What Businesses Need to Know
Are non-compete clauses enforceable?
How can I make sure my contractor’s don’t steal my clients?
These are common - and legitimate! - questions I often get asked by my clients.
When hiring employees or working with independent contractors, businesses often include restrictive covenants—clauses that limit what a person can do while working for or after leaving the company. Two of the most common are non-compete clauses and non-solicitation clauses.
While both serve to protect a business’s interests, they have different legal implications. Let’s dive into the differences, and how you can use them.
What is a Non-Compete Clause?
A non-compete clause restricts a former employee or contractor from working for a competitor or starting a competing business for a specified period and within a defined geographic region. The purpose is to prevent individuals from using insider knowledge or business relationships gained during their employment to create unfair competition.
However, in British Columbia, non-compete clauses are generally unenforceable, especially in employment agreements. Courts view these clauses as restrictive to an individual's ability to earn a living and will only uphold them in very limited circumstances. Employers must demonstrate that a non-compete is necessary to protect a legitimate business interest and that a less restrictive alternative, such as a non-solicitation clause, would not be sufficient.
British Columbia courts follow the common law approach, which means non-compete clauses must be reasonable in duration, scope, and geographic limitations to be upheld. If a court finds a non-compete to be overly broad or unnecessary, it will likely deem the clause unenforceable.
What is a Non-Solicitation Clause?
A non-solicitation clause prevents an employee or contractor from directly reaching out to and attempting to lure away the company's clients, customers, or other employees during the term of the agreement, and for a specified period of time after the contract term ends. Unlike a non-compete, this type of clause does not prohibit a person from working in the same industry—it simply prevents them from actively “poaching” business relationships they had access to while working with their former employer.
British Columbia courts are far more likely to uphold non-solicitation clauses than non-compete clauses because they are considered a reasonable way to protect a company’s legitimate business interests without restricting a person’s right to work. That said, for a non-solicitation clause to be enforceable, it must be reasonable in scope, meaning it cannot be overly broad in terms of time restrictions or geographic limitations.
Non-Compete & Non-Solicitation in Contractor Agreements vs. Employee Agreements
When working with independent contractors, businesses may have more flexibility in including restrictive covenants. Since contractors are not employees, courts may be slightly more willing to uphold non-compete clauses if they are deemed necessary to protect proprietary information or trade secrets. However, these clauses must still be reasonable in scope and duration to be enforceable. However, if you are hiring a contractor because of their expertise in a specific niche area, a non-compete may not be enforceable (or a good idea to agree to if you are the contractor!) as it could be interpreted to be unreasonably restrictive.
For employee agreements, non-compete clauses are typically unenforceable in British Columbia, and businesses should rely on non-solicitation clauses instead. Employers should also be cautious about how restrictive covenants are framed in employee contracts, as courts may view overly aggressive clauses as an imbalance of power.
Best Practices for Businesses in British Columbia
Use Non-Solicitation Clauses Instead of Non-Compete Clauses – Unless absolutely necessary, businesses should opt for non-solicitation clauses, which are more likely to be enforceable.
Keep Time Limits Reasonable – A non-solicitation clause with a one- or two-year time limit is more likely to be upheld than one lasting indefinitely.
Avoid Geographic Restrictions in Non-Solicitation Clauses – Unlike non-competes, non-solicitation clauses typically don’t need geographic limits, as they focus on direct solicitation rather than competition.
Tailor Clauses to Business Needs – Overly broad restrictions may be struck down by courts. Ensure clauses are specific and justifiable.
Read your Contracts Carefully - Before you sign anything, whether as an independent contractor or employee, read your contract carefully to ensure that you are not restricted unnecessarily.
Final Thoughts
Non-compete and non-solicitation clauses are important legal tools for protecting a business, but they must be drafted carefully to be enforceable in British Columbia. Given the strong legal preference for allowing individuals to work in their chosen fields, non-solicitation clauses are the preferred approach for most businesses. If you need guidance on how to structure restrictive covenants in your contracts, I encourage you to reach out and schedule a consultation call.
