Read more about us here. Of note, with respect to the organization test, the Court referred favourably to the following statement by MacGuigan J.A. These may be some of the very people the law is trying to protectbut they are left out. non The results are in: Canadians understanding of open banking is low, according to the Financial Consumer Agency of Canada (FCAC). This category only includes cookies that ensures basic functionalities and security features of the website. In making this determination, the level of control the employer has over the workers activities always will be a factor. In Crawford Packaging Inc. v. Dorata,6 a salesperson employee signed an employment agreement that included an 18-month non-compete clause covering a geographic area within any sales territory where the employee worked. The employee resigned to join a competitor business. Learn how to navigate the coming changes. What about associate/principal relationships, which are typically framed as an independent contractor (associate) providing services to a client (principal)?. Non Embed. In my view, neither should courts read in or imply a restrictive covenant into an employment contract where the parties have bargained for one, and then allowed it to lapse.12. On December 2, 2021, it became law. Ontario Bans Employee Non-Competition Moreover, generally, independent contractors are not entitled to social benefits like employment insurance (EI) and CPP. The fact I supply the equipment and am responsible for insurance and maintenance is also persuasive in finding an independent contractor relationship. Rather, specific legal advice should be obtained. The former employee also had no confidential information about the employers projects that could harm the employer in those 12 months. February 12, 2020 Rahul Soni Employee Rights 0 Comments The growing gig economy in Canada was once limited to more temporary arrangements, such as ride-sharing and informal assignments with freelancers. 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. To begin, the Ontario Superior Court of Justice noted the following legal principles about the enforceability of non-competes: Ordinarily, a non-solicitation clause provides adequate protection, and only in exceptional cases will a non-competition clause be upheld as being reasonableThe restrictive covenant must be reasonable as to geographic scope and duration The covenant must be clear and unambiguous.7, But the Court did not get around to applying these principles here because the employer had failed to meet the very high standard of proving harm (which was also required for the Court to enforce the non-compete). Fast forward: Navigating change in Canada's new age of employment. Fasken has extensive experience with advising and assisting clients, across a wide variety of industries, regarding how to protect their business interests, including, where appropriate, through injunctions and other extraordinary remedies. The IRIS and Ceridian cases provide very useful current judicial road maps which contain important guidance for employers. Employee + Non-Compete = Unenforceable Part 1: Ontarios Working for Workers Act, 2021. 2019 Decision: Therefore, the clause went beyond what was reasonably required to afford adequate protection to IRIS existing trade connections. If a call is rejected, the drivers must supply a reason. Whether the employee dealt with clients exclusively, or on a sustained or recurring basis. Send. Drivers are rated by customers and must maintain a certain rating to work with me. Gowling WLG International Limited promotes, facilitates and co-ordinates the activities of its members but does not itself provide services to clients. The Ontario Superior Court of Justice refused to enforce the clause. The principal dentist could have no interest in referring dentists that stopped or never referred to him. First, the Court found that the employer couldnt establish a proprietary interest worth protecting. Some employers use titles like "Managing Partner", "Managing Director", "Operations Executive", etc. Employment, Labour & Equalities Law Webinar Series | Pitfalls of workplace investigations, Employment, Labour & Equalities Law Webinar Series | Termination for cause, "High risk" employers required to have Naloxone Kits in the workplace starting June 1, 2023. No. Embed. The fact my drivers are obliged to work a minimum number of 12-hour shifts in one week, with the threat of penalties, is persuasive in finding an independent contractor relationship. 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? WebLitigating Across Ontario. The clause restricted Dr.Park not only from competing in the business of optometry, but also in any business that dispenses prescription or non-prescription optical appliances including eye glasses or sunglasses. Meanwhile, another dentist, selling their practice, is presented with a purchase and sale agreement. Take our survey. The employer lost the motion and was ordered to pay the former employee $47,488.82 in costs. As did the BC Court of Appeal, the Ontario Superior Court emphasized that a covenant not to compete in the employment context is a restraint of trade and thus prima facie void as a general rule. We use cookies to make your website experience better. Someone who contracts to do a specific piece of work, and provides his or her equipment, and executes the work under his or her terms, without being subject to orders of work is generally anindependent contractor, not an employee. The employer sued to and tried to enforce the non-compete clause by bringing a motion for an interlocutory injunction. Be sure to ask your clients for all employment agreements and policies prior to giving legal advice on hiring and firing to determine if there are illegal non-competes in existence. While we cannot say for certain absent a tribunal/court decisions or further clarity by way of regulation , it is our view that there is a good argument that this exception ought to be interpreted to include any employee who performs the duties and has the level of responsibility typically associated with the enumerated executives. It also does not apply to gig workers The new statutory prohibition codifies and re-enforces important common law principles regarding non-competition covenants in employment agreements. Each truck is outfitted with a dispatch device from the automobile association. 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Once a policy on disconnecting from work is rolled out, including any subsequent amendments, copies must be retained for no less than three years after the policy ceases to be in effect. The definition of Executive under the newly amended ESA is 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. (See second bullet 2 under Trouble Ahead? below for an explanation of this exemption and some future problems.). While the prohibition clearly applies to agreements between employers and employees, it also extends to agreements between job applicants and prospective employers. with the authors. I hire tow truck drivers as independent contractors, and I make them sign a contract saying they are an independent contractor. In the Courts own words, faced with this express legislative intent to make the ESA amendments applicable as of October 25, 2021, and not earlier, it cannot be said the provisions with respect to the non-compete clause applies to contracts of employment with non-compete clauses entered into before October 25, 2021. So while most non-competition agreements may be out of bounds, it cannot be assumed that a clause does not apply if it was signed before the law changed. 2021 Decision: Greco Health Shack), [2005] OESAD. [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. Soni Law Firm is a boutique litigation firm serving employees, employers, and trade unions across Ontario. 2019 2023 MITCHELL ROSE PROFESSIONAL CORPORATION. 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. In other words, will non-comp provisions in Shareholder Agreements, where the non-compete provision is tied to holding shares, as opposed to cessation of employment, be deemed to be void? Freelance Consultants Not Bound By Non-Competition Agreement. Cook. Drivers are not disciplined if they refuse calls; they just do not get paid. Therefore, this article will use the example of tow truck drivers to determine who really is an independent contractor. But this doesnt exactly clear things up nicely, so, instead, we move on to the common law definition of independent contractor. But opting out of some of these cookies may affect your browsing experience. 1 mo. Waterloo Region, Nicole Hilliard 2020 Decision: The Ontario court held that a prohibition from providing services in any capacity to any business competitive with Ceridian was overly broad because it would prohibit the employee from working in areas completely unrelated to his employment duties as a software engineer. The clause also uses the word indirect contact without explaining what that means. The Court noted the difficulties which have emerged from the application of each of these tests. Contractors need to seek legal advice to determine if they are legally bound by non-competes, or if they are actually employees for legal purposes who could be re-classified and, therefore, entitled to various legal protections under the ESA. If competition by the employee has already occurred, whether there is evidence that clients have switched their custom to him, especially without direct solicitation. Second, there was no geographic limits set out in the clause. In many instances, it is crystal clear if someone is an independent contractor. This remains a risk; however, for the time being, and until there is further clarification on this issue by regulation or court/tribunal decision, we believe that both the rules of interpretation, and guidance from the Ministry of Labour militate in favour of not applying this provision to any non-compete agreements entered into prior to October 25, 2021. This concept is reflected in the exclusion of chief executives and other senior executives from the new statutory prohibition on non-competition covenants in employment agreements. Manifestly, there is a lower likelihood of a power imbalance existing between the parties in such a context as compared to the employment context. Their schedule does not permit them any extra time to make additional income. However, in many other cases, someone wants to be an independent contractor because he or she wishes to render employment-like services and yet, for tax treatment, wants to be classified as anindependent contractor. On her return the employment agreement was replaced by an independent contractor agreement. Think of this like a building that no longer complies with certain zoning by-laws. As it turns out: only sometimes. The new statutory prohibition is consistent with the longstanding common law presumption that a non-competition covenant in an employment agreement was contrary to public policy and generally unenforceable. 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. By accepting this notice and continuing to browse our website you confirm you accept our Terms of Use & Privacy Policy. The Act automatically amends the ESA so that no employer shall enter into an employment contract or other agreement with an employee that is, or that includes, a non-compete agreement (defined as an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employers business after the employment relationship between the employee and the employer ends.) In 2017, the employee left to start working at a competing print shop business. No. Sellers of part of all of their business, who become employees of the buyer immediately following the sale. While making non-competes illegal is welcome news for employees, it would be wise not to sign any employment contract or employment related agreement without first seeking legal advice. You can use the button below to schedule a call back from a member of our team, or give us a call at 781 [bold added]. Executives, defined 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.". Non None of its employees has left their employment. 11 January 2021. by James R.G. 39. [3] See Employment Standards Act, 2000, SO 2000, c 41, s 1(1). Your employment contracts or independent contractor agreements may use a non-compete and/or non-solicitation clause. Now I know what youre thinking: But all of these recent Ontario cases only dealt with purely employment relationships. The non-compete clause restricted the employee, for a period of up to 12 months, from directly or indirectly provid[ing] services, in any capacity to any person or entity that provides products or services or is otherwise engaged in any business competitive with the business carried on by the Company or any of its subsidiaries or affiliates at the time of his termination. This is an option that some businesses typically consider because they want to protect their The law of independent contractors in Ontario The line between an employee and an independent contractor is sometimes difficult to determine, and it is Accordingly, where there is a change in terms, we recommend incorporating deletion of the prior non-compete language as part of the amendment. Dangers of Having An Independent Contractor Sign a The community involved and whether there were clientele yet to be exploited by anyone. Importantly, the prohibition does not apply to commercial agreements (i.e., outside the employment context), nor does it apply to agreements with independent contractors (or other individuals who are not employees under the ESA).[3]. Non Compete Agreements and Clauses in Ontario - An Fast forward: Navigating change in Canada's new age of employment. Now Wait Just a Second Even most independent contractor agreements for professionals who are in sales or maybe at the executive level. 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.
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