So once in a while, we get a case where the court is asked to decide on whether a non-solicitation clause is valid and enforceable. And we dental lawyers need to be on top of these cases because a lot of what we draft includes non-compete and non-solicitation clauses (purchase and sale agreements, associate agreement, staff contracts, etc.).
So in July of this year, the Ontario Superior Court of Justice released its decision in the case of MD PHYSICIAN SERVICES INC. et al. v. DUANE WISNIEWSKI et al. , ONSC 2772. The facts of that case are as follows: MD Management Limited and a bunch of other companies owned by it (“MDM“) offered products and services primarily to Canadian physicians. We have 2 individuals, Duane Wisniewski and Joy Sleeth, who were employees of MDM until they left in 2013 to join a competitor firm, RBC Dominion Securities. MDM alleged that these individuals breached the non-solicitation terms of their employment contracts.
Now, the individuals claimed that those terms were unenforceable because they were too vague, too unreasonable, and there was a lack of consideration (required to make a bargain) that was given to these individuals in exchange for including the non-solicit clauses. Alternatively, these individuals claimed that they never breached the non-solicit because it was reasonable for them to notify clients of their new employment and that it was contrary to public policy to enforce these types of clauses anyways (so clients can have a more fully informed decision about the future direction of their investments).
The Ontario Superior Court of Justice didn’t buy it. First off, Joy Sleeth had signed / acknowledged non-solicitation clauses as part of her employment with MDM over many years and promotions. For his part, Duane Wisniewski had done the same. So the court ruled out that these individuals didn’t know what they were signing and sufficient consideration (namely continued employment) had been given.
With respect to the use of non-solicit, the Court stated the following:
Then the Court moved on to the issue of whether the specific non-solicit clause was enforceable. Did MDM have a proprietary interest entitled to protection? Yes. Because the individuals are paid based on a percentage of fees generated by that business, with no base salary. The book of business hence became a capital asset for them. But the client lists were provided to the individuals and created based on the efforts of MDM. MDM should have its list protected because it has a genuine interest in ensuring that it is not used simply as an opportunity for financial planners to make contact with physician investors within the relatively protected environment of the firm and then attempt to utilize those contacts to take customers away from it.
Was the restrictive covenant reasonable in terms of the public interest? Yes. It was only for a 2 year time limit after the relationship ended. It wasn’t a drastic non-compete clause. And there were lots of other Ontario cases that enforced a 2 year non-solicit: Syntax Systems Ltd. v. Mid Range Computer Group Inc.  O.J. No. 3684 (Ont. S.C.J.), Smilecorp Inc. v. Pesin  O.J. No. 5734 (Ont. S.C.J.). Based on this, the non-solicit was neither ambiguous nor unreasonable.
Was the restrictive covenant ambiguous with respect to length of time, geographic scope or scope of proscribed activities? No. The individuals were limited in who they could contact based on the terms of the agreement and the Oxford definition of “solicit”. But they could still, for example, freely solicit clients of MDM whom they had not serviced and anyone else, including physicians, who had never been a client of MDM whom they had served as an investment advisor or had encouraged to become an investor with MDM.
Now, importantly, the geographic restriction which was included in the non-solicit agreement appeared to be unhelpful: the non-solicit said that the individuals were not to solicit “within the geographic area within which s/he provided services to the employer”. Well, this is pretty vague and without precision. So would the court throw out the whole non-solicitation clause on this basis? NO. Instead the court held that the geographic description neither adds to nor detracts from the non-solicitation provision. The reason being that the individuals could have serviced or solicited clients of MDM from wherever they were (financial advice can and is provided over both long and short distances). The geographic restriction was so trivial and not part of the main purports of the restrictive covenant that it was simply severed and did not form part of the Court’s assessment as to whether the non-solicitation agreement is enforceable!
For these reasons, the Court found that the individuals had breached the non-solicitation clauses and RBC Dominion Securities was vicariously liable because it instructed them to contact former clients and coached them on how to do it. Costs were to be decided at a later point.
OK, so I get into these heated debates with other lawyers and dentists about the enforecability of non-compete clauses, non-solicit clauses and liquidated damages clauses (you know the thing that says you’ll need to pay $250k if you solicit a staff member?). My view is supported by cases that stretch back decades: (1) non-competes for entry level associates are generally unenforceable except in exceptional circumstances, (2) non-solicitation clauses can be enforceable but they should specify what kinds of activities are prohibited, and (3) liquidated damages clauses are often a punishment (which a court will have difficulty enforcing) instead of a genuine pre-estimate of damages (which a court will enforce). Despite these views, people still push to include them in their agreements. Likely because they’re good to have in their for negotiating positions / settlements.
Well, let me tell you something: I love being right. And here’s another example of a recent case in British Columbia that dealt with these exact issues.
In IRIS The Visual Group Western Canada Inc. v. Park, 2016 BCSC 2059 (decided November 7, 2016), the B.C. Supreme Court had to decide whether a non-compete, non-solicit, and liquidated damages clauses found in an employment agreement with an optometrist were legal and enforceable. They were not.
By way of background, Dr. Hannah Park was an employee of IRIS the Visual Group Western Canada Inc. Those parties entered into 2 written agreements that contained restrictions. The first restriction was a non-compete. It said that Dr. Park couldn’t compete within 3 years after the agreement was terminated within 5 km of the IRIS Vernon outlet. Second, Dr. Park agreed not to solicit, interfere with or endeavour to entice any customer, patient, etc. that is “in the habit of dealing with” her employer. Third, Dr. Park agreed that, if her employer wanted her to transfer her patient records and she didn’t, she would have to pay a chart fee of $100 per chart. Finally, and importantly, if Dr. Park does violate these sections, she’s on the hook for some hefty amounts owed to her employer – namely, the higher of $75,000 OR $50,000 multiplied by the number of years / partial years that Dr. Park practices optometry from the location after starting with her employer up to $250k!
Non-Compete: the Court found that the non-compete was unenforceable because it was too broad:
Interestingly, the Court found, based on the evidence before it, that the restricted geographic area and time were reasonable in those circumstances in light of IRIS’ legitimate interest in protecting its patient base.
Non-Solicit: Dr. Park ran an ad in 3 editions of a local newspaper which included information about the opening of her new clinic and included the words “Dr. Park looks forward to seeing familiar faces and welcoming new patients”. IRIS argued that the “familiar faces” reference meant she was soliciting their patients. But the court disagreed because of the precise wording used in the non-solicit clause – which made reference to customers “in the habit” of dealing with her employer. The Court noted that this phrase “in the habit” was too vague to be enforceable. The Court further noted that, a non-solicit clause, unless it specifically says so, doesn’t prevent someone from doing general advertising in the media. This was following 2 Ontario court cases which I’ve previously discussed here. Given the difficulty in interpreting the clause and figuring out whether Dr. Park had intentionally targeted repeat customers, the employer’s claim failed.
Liquidated Damages: Dr. Park didn’t pay too much attention to the liquidated damages clause when she signed. She was concerned with her hours, just had a baby, etc. But when she got to court, she argued that the liquidated damages clauses were actually ILLEGAL penalties and NOT a LEGAL genuine pre-estimate of damages. The Court noted that the provisions allowed Dr. Park to end up paying, at the maximum, $250k if she violates the failure to pay $100 per chart / non-compete / non solicitation clauses discussed above. The Court found it “extravagant and unconscionable that a single breach of section 6, which would result in a $100 payment under that section, could also expose Dr. Park to a claim for $250,000 in damages under section 7. In light of this, I conclude that section 7 provides for a penalty and not liquidated damages”. When a clause is found to be a penalty, the next thing the Court will ask is whether any relief should be granted against the penalty. In this particular case, the Court didn’t have enough evidence before it so it refused to decide whether Dr. Park should be relieved from the penalty.
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact me (Michael Carabash) or David Mayzel.
Now, you’ve probably read my previous blogs about non-solicitation:
And, while doing some research, I came across an important Ontario case which I wanted to share.
In Dr. Alain Nourkeyhani Dentistry Professional Corp. v. Pakroo  O.J. No. 2249, the Ontario Superior Court of Justice (Divisional Court) had to determine whether Dr. Jaffar Pakroo dentist should be prevented from practicing dentistry in contravention of a purchase and sale agreement, as well as being prevented from advertising his new practice in the Iranian media. In August 2007, Dr. Pakroo sold his practice to Dr. Alain Nourkeyhani DPC. The agreement of purchase and sale contained various restrictive covenants, including a non-compete and a non-solicitation clause. Specifically, the agreement said that Dr. Pakroo would not practice as a dentist within a 10-mile radius of the then current office; the agreement also said that Dr. Pakroo would not “directly or indirectly, contact, solicit, interfere with or endeavour to entice away from the Purchaser in any manner whatsoever, any patient”. Less than 1 year later, Dr. Pakroo opened an office within the 10-mile radius of his other office. Dr. Alain Nourkeyhani DPC sued.
On a motion (i.e. a mini-trial that is brought before the trial to deal with the issue of whether Dr. Pakroo should be allowed to operate his new practice), the Divisional Court held that it was clear that Dr. Pakroo had violated the purchase and sale agreement and ordered him not to engage in the practice of dentistry at his new office. He was also ordered to “cease and desist from advertising his services as a dentist in the Iranian media in the Greater Toronto area”.
Dr. Pakroo appealed the decision. The Divisional Court sided with the previous judgment and saw no reason to interfere. The motion judge had identified the legal test and applies it to the facts to make a decision. So the Divisional Court dismissed the appeal with respect to the part of Dr. Pakroo not engage in the practice of dentistry at his new office until the trial was decided.
That said, the Divisional Court did not agree with the motion judge’s order concerning preventing Dr. Pakroo from advertising in the Iranian media. Indeed, the Divisional Court held that, based on the jurisprudence of appeals, the motions udge got it wrong and granted an appeal to Dr. Pakroo. Here’s how the Court got there:
18 It is generally recognized that a non-solicitation clause in an agreement does not prevent a person from doing general advertising in the media: Groupe Financier Assbec Ltée v. Dion, (1994), 61 C.P.R. (3d) 289 (Que. C.A.); Hawboldt Industries Ltd. v. Chester Basin Hydraulics & Machine Ltd.  N.S.J. No. 87, 57 N.S.R. (2d) 413 (N.S.S.C.) at paras. 55 and 62; Sanford Evans List Brokerage v. Trauzzi,  O.J. No. 1394, 50 C.C.E.L. (2d) 105 (S.C.J.) at para. 49, and cases referred to therein. In addition, it is generally not considered to be solicitation of customers if advertisements are placed in trade journals or the like, provided that confidential information is not used: Hawboldt Industries Ltd. If advertising of a general nature is carried out, it is irrelevant that information with respect to the defendant’s new location may come to the attention of his former customers and irrelevant that they might therefore seek him out. That does not constitute solicitation. It is only where a defendant makes use of confidential information or targets specific members of the former client base that advertising efforts have traditionally been found to be objectionable.
19 In Dr. P. Andreaou Inc. v. McCaig,  B.C.J. No. 537 the British Columbia Court of Appeal held that a dentist who sold his practice in Surrey and then placed an advertisement in the local Surrey newspaper announcing the new location of his practice (which was outside the Surrey area) did not breach the terms of the sale agreement prohibiting him from soliciting former patients. The wording of the non-solicitation clause in that case is strikingly similar to the one at issue in this case. Further, the fact that the ads were placed by Dr. McCaig in the Surrey newspaper where the former practice was located, rather than in the new community in which he was practicing, is significant. The ads were placed in the community where those patients were located.
20 In my view, the decision of the motion judge on this issue is in conflict with the cases I have cited, and in particular with the British Columbia Court of Appeal decision referred to in the preceding paragraph. This is not simply a matter of exercising discretion in a different way. It appears to me that there is an actual conflict in principle.
21 Alternatively, based on these authorities and on the wording of the agreement in this case, I have reasons to doubt the correctness of the motion judge’s decision in this regard. The plaintiff knew about the advertising Dr. Pakroo had done in the past. It would have been a simple matter to insert a provision with respect to advertising if it was the intention of the parties that there should be a limit on advertising. It also appears that the motion judge took into account that the defendant had breached the geographic restriction in the non-competition clause when issuing the order prohibiting future advertising. In my view, it is debatable that the defendant’s bad conduct in where he chose to relocate his practice can be used to restrain his right to advertise his practice, which otherwise is an untrammelled right. The fact that advertising generally is not restrained, but merely advertising in the Iranian media, does not alter the fact that there is nothing in the agreement prohibiting advertising at all, whether in the Iranian media or elsewhere. Just because a large proportion of Dr. Pakroo’s former patients are Iranian does not mean that placing advertisements in the Iranian media is a “solicitation” of those people. Clearly, Dr. Pakroo sought to reach individuals likely to be particularly interested in his services, and clearly many of his former patients would be likely to see or hear the ads he placed, but so would many other potential clients. It is strongly arguable that more than this is required before a person can be restrained from communicating his place of business to the public.
22 In my opinion, this is an issue that goes beyond the interest of the two parties involved. Toronto has a rich and diverse population. There are many separate cultural communities within the Greater Toronto area and many media sources serving the particular needs of those communities, often in their own language. Many individuals in those communities have a less than perfect grasp of the English language and prefer to deal with professionals, such as doctors, who can communicate with them in their native languages. Prohibiting a professional from advertising in his own cultural community whenever he or she is restrained from soliciting former clients or patients has implications both for those professionals, and for the community they serve.
Moral of the story: if you want to prevent a dentist from soliciting and you want to include prohibitions on advertising, then make sure your agreement says so! Legal battles can hopefully be avoided if the parties enter into clear, complete, and certain agreements. As the Divisional Court said above: “It would have been a simple matter to insert a provision with respect to advertising if it was the intention of the parties that there should be a limit on advertising”.
Finally worth mentioning is that this Ontario case follows and cites Dr. P. Andreaou Inc. v. McCaig, which I discussed in my previous blog.
Here is my article entitled “When Your Associate Leaves…”, which will be published in next month’s edition of Ontario Dentist magazine:
Now, due to space restrictions, I wasn’t able to get into some additional and more recent cases involving associates leaving and the principal suing. So here they are:
In Dangstorp v. Lefebvre  S.J. No. 755, two dentist partners (Dr. Deryl Dangstorp and Dr. Hans Baumann) engaged Dr. Maureen Lefebvre as an associate/employee while negotiating her joining their partnership. No written associate agreement had been drawn up. When negotiations failed, the partners terminated the associateship. Dr. Lefebrve subsequently took steps to set up her own practice in the same building as one of the partners’ practices. The partners sued, alleging that she had used patient lists to contact their patients and solicit them. They also alleged that she had the receptionist contact patients on her behalf to solicit them. They sought to prevent Dr. Lefebvre from contacting any of their patients on the basis that she had breached a fiduciary duty she owed them. The Saskatchewan Court of Queen’s Bench dismissed the claims. The Court accepted the finding in the Bacher v. Obar that, while there was no such fiduciary duty, a senior dentist and an associate had a duty to act reasonably toward one another in the conduct of their affairs. The Court also reiterated that professionals do not have a proprietary right in their patients and that patient information can be removed from the office to facilitate proper treatment of patients.
In Lodwig v. Mather,  A.J. No. 382, Dr. William Mather, an established dentist with his own practice, engaged a recent graduate, Dr. Gordon Lodwig to associate. They had an oral agreement. Dr. Lodwig stayed on for almost two years before Dr. Mather terminated the relationship. Dr. Lodwig immediately proceeded to open up his own clinic and hired a dental assistant who had been employed with Dr. Mather for the past 12 years. When he left, Dr. Lodwig took the names of the patients he had treated while at Dr. Mather’s clinic and advised these patients orally or by letter or newspaper notice of his new location and his preparedness to continue to serve them. Dr. Mather sued on the basis that Dr. Lodwig had breached a fiduciary duty. The Alberta Court of Queen’s Bench rejected this claim. The Court cited Goodman v. Newman, Bacher v. Obar, Kronick v. Lamarche, and Dangstorp v. Lefebrve as examples showing that no fiduciary relationship had been found to exist between an associated dentist and an owner dentist; the Court found no basis for the creation of a fiduciary duty on the part of Dr. Lodwig to Dr. Mather. The Court further found that Dr. Lodwig was entitled to take the patient list and had not improperly solicited those patients he personally treated: “A dentist who practises as an associate or even as an employee of another dentist, has the right to have access to or retain the names of the patients with whom he or she has had an exclusive or primary dentist-patient relationship and to advise those patients of the change of location of his or her practice.” Dr. Lodwig had also obtained proper consent and authorization for the patients who came to see him to obtain a copy of their records from Dr. Mather’s clinic. Finally, Dr. Lodwig had hired an employee who had requested employment with him and who had given proper notice.
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