Here at DMC, we keep a close eye on whenever courts in Canada have something to say about restrictive covenants and non-solicits (just like Michael Carabash did not too long ago).
I just read a recent case (from Quebec) that put a nice big check mark on the side of Principals and Employers and protecting their Non-Solicitation (non-solicit) clauses and their businesses.
Filed under Blog, Non Compete | Non Solicit, Staff · Tagged with are non solicitation clauses legal, associate agreements, damages, dental lawyers, dental office, DMC LLP, jointly and severally liable, Jonathan Borrelli, liquidated damages, non solicit, non solicitation, non solicitation agreement, penalize employee, quebec not ontario, restrictive covenants
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.
Despite the free 340-page Ontario Dental Law eBook we have (available in the top right corner of this page [Page 11 is Employment Law!]), and the hundreds of blog posts published on our website, I was surprised to see that the employment contract was deficient in 5 different ways.
Filed under Blog, Staff · Tagged with certification, contracts, deficient, dental law lawyers, dental lawyers, dentist lawyers, DMC LLP, employment law, fixed term contract, hardware, internet, job description, Jonathan Borrelli, non solicitation, software, staff contract, team members, termination clause
Non-solicitation clauses: it’s something we help Dentists with on a regular basis. If you have associates working for you, or are yourself an associate, you likely have already agreed to a non-solicitation clause. Read more
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.
So a few months ago, my article entitled “Are Non-Solicitation Clauses Legal: It Depends” (Ontario Dentist Magazine, April 2013) discussed the legality of non-solicitation clauses (which can be found in various types of agreements, such as associate agreements, agreements of purchase and sale, etc.). Well, due to space limitations, I couldn’t discuss every case dealing with dentists and non-solicitation clauses. But I recently came across a 2007 B.C. Court of Appeal case that dealt with the interpretation of a non-solicitation clause. And I think that court case is important to discuss. The bottom line is that you should have a dental lawyer carefully draft a non-solicitation clause to capture the essence of what you (as the party seeking to rely upon it) is trying to do.
In Dr. P. Andreou Inc. v. McCaig,  B.C.J. No. 537, Dr. Bruce McCaig and Dr. Allan Kilistoff operated a practice. Dr. McCaig eventually wanted out, so he sold his interest to Dr. Kilistoff and and started cutting his hours thereafter. Dr. McCaig had a loose relationship with Dr. Kilistoff (nothing in writing). Dr. Patrick Gowdy was brought in to make up for the days that Dr. McCaig was not working. Dr. Gowdy had a written agreement with Dr. Kilistoff which included a non-solicitation clause (i.e. “he will not, either directly or indirectly, for a period of 24 months following the termination of this Agreement for any reason, communicate in any way with patients of the Principal to whom the Associate provided dental care as part of the Dental Services provided by him under this Agreement, for the purpose of soliciting or assisting with the solicitation of such patients to obtain dental care,…”)
Dr. Kilistoff eventually sold the entire practice to Dr. Panos Andreou. As part of buying the practice, Dr. Andreou required Dr. McCaig to enter into an associate agreement with him. Dr. McCaig resented this requirement, but the parties eventually came to an agreement. Part of that agreement provided that Dr. McCaig would not “communicate either directly or indirectly with patients of the Principal for the purposes of soliciting such patients to obtain dental care or services, including without limitation dental hygiene services, from a source other than the Principal or persons employed or engaged by the Principal, except in the case of professional referrals as permitted by this Agreement”. Dr. McCaig also agreed not to “solicit any employees of the Principal or used in the Principal’s Practice for any employment with any party, so long as they are under contract with the Principal”.
In January 2004, Drs. McCaig and Gowdy opened a dental practice in White Rock. Drs. McCaig and Gowdy advertised their new practice in local newspapers, including the Surrey Leader. The purpose of the ad was to advise former patients of their new location and to solicit new patients. The ads did not refer to their previous practice or patients. The question before the court was whether these dentists had violated the non-solicitation clauses in the contracts they had signed.
Drs. McCaig and Gowdy did not challenge the reasonableness of the non-solicitation clauses. But they took issue with whether their actions had indeed breached the wording of those clauses.
At trial, the judge found that the newspaper ads constituted “solicitation” as prohibited in the non-solicitation covenant and ordered damages to be paid. But on appeal, the B.C. Court of Appeal reversed that part of the trial judge’s decision and held that the general advertisement was not enough to constitute a breach of a non-solicitation clause in the agreements. The court held that the parties intended to EXCLUDE informational advertising; otherwise, they would have included a clause saying so or one like that which had been included in the agreement of purchase and sale between Dr. McCaig and Dr. Kilistoff. The B.C. Court of Appeal reviewed U.S. and Canadian cases that had found that a newspaper ad announcing a new business location had not breached a non-solicitation clause. As such, the Court dismissed the part of the case against Drs. McCaig and Gowdy for placing advertisements in the Surrey Leader.
Note that this case involved multiple issues (e.g. constructive dismissal, breach of fiduciary duty, failing to pay for patient files to be transferred, etc.) and non-solicitation of patients via general newspaper advertisement was simply one of those issues (and the topic of this blog).
David Mayzel is your legal risk manager. He is a trained courtroom lawyer and has spent many years resolving disputes both in and out of court. He knows how to prepare documents and execute transactions in a way that avoids or mitigates legal risks. He can be reached at 416.528.5280. or firstname.lastname@example.org.
Michael Carabash is your business law adviser. He is an entrepreneur at heart who helps you see the big legal picture. He drafts clear and effective agreements that protect your rights while promoting your interests. He can be reached at 647.680.9530. or email@example.com.
Ljubica Durlovska is your transition lawyer. She helps you with staff and associates, maintaining your corporation, and other business matters. She can be reached at 416.443.9280, extension 206 or firstname.lastname@example.org.
Jonathan Borrelli is your employment lawyer. He helps you with staff and associates matters, including hirings, terminations, switching staff to written contracts and resolving disputes. He can be reached at 416.443.9280, extension 204 or email@example.com.
Benjamin Kong is an experienced business law clerk. He assists David and Michael with corporate matters and purchase / sale transactions. He can be reached at 416.443.9280, extension 207 or firstname.lastname@example.org.
Julie Whitehouse is an experienced business law clerk. She assists David and Michael with corporate matters and purchase / sale transactions. She can be reached at 416.443.9280, extension 203 or email@example.com.
David, Michael, Ljubica, Jonathan, Ben and Julie are a truly dynamic team. Their diverse knowledge, skills, and experiences will help you get the best deal possible while promoting your interests and protecting your rights. You can read dentist testimonials here.