Competitor Hiring: Insights from Legal Precedent
**Writtten by Zura Nakiwoga, Articling Student at Lee Workplace Law
Introduction:
Hiring talent from competitors can be a smart move for businesses aiming to boost their workforce. However, it is essential to understand the legal complexities involved to avoid potential pitfalls. In EF Institute for Cultural Exchange Limited v. WorldStrides Canada, Inc., 2023 ONCA 566 (CanLII), the Ontario Court of Appeal provides valuable insights into the legal considerations surrounding competitor hiring. Understanding this case can help employers and employees alike make informed decisions when handling these transitions.
EF Institute for Cultural Exchange Limited v. WorldStrides Canada, Inc.:
Facts:
This case stemmed from a disagreement between EF and its former employee, David Conklin. Conklin, who joined EF in 2005 and rose to the position of President, signed an employment agreement with EF with confidentiality and non-competition clauses.
After his termination in 2014, Conklin negotiated a severance package, which obligated him to abide by these clauses. Subsequently, Conklin explored a job opportunity with WorldStrides during the non-compete period. In particular, during Conklin's non-compete period, he engaged in discussions with WorldStrides and accepted a job offer. However, his new employment did not commence until after the non-compete period's expiry.
Lawsuit:
EF brought a lawsuit against both Conklin and WorldStrides Canada, Inc. alleging breaches of the employment agreement, including the non-competition and confidentiality clauses. The trial judge ruled in favour of Conklin and WorldStrides, dismissing the claims brought forth by EF.
EF appealed.
Court of Appeal Decision:
The Court of Appeal considered whether discussing future employment with a competitor during a non-compete period constituted a breach of contractual obligations and fiduciary duties. After thorough analysis, the court ruled in favour of the employee, emphasizing that mere discussions with a competitor did not automatically breach fiduciary duty or contractual obligations. The decision underscored the employee's right to explore job opportunities within contractual agreements while maintaining confidentiality.
Takeaways for Employers:
Understanding the implications of the EF Institute case is crucial for employers navigating competitor hiring. Relevant considerations include:
- Contractual Obligations: While employment agreements are confidential, employers should ask candidates about any operative restrictions or restrictive covenants from previous or ongoing employment. Candidates should disclose any binding obligations to avoid potential legal issues.
- Confidentiality: Stress the importance of confidentiality during recruitment. Employers should remind candidates that they are not to disclose sensitive or confidential information about past employers or third parties.
- Ethical Practices: Uphold ethical standards. Avoid soliciting proprietary information from candidates or asking them to engage in actions which could be in direct violation of any ongoing and binding restrictive covenants.
Takeaways for Employees:
On the flipside, there are also important takeaways for employees navigating job transitions:
- Permitted Discussion: While this case confirms that exploratory conversations with potential new employers are unlikely to breach any applicable non-compete restrictions, employees engaging in these kinds of communications should still be careful to avoid disclosing any confidential information belonging to their current or past employer.
- Transparency: If the employee is bound by existing contractual obligations, such as confidentiality, non-solicit, or non-compete obligations, they may wish to consider disclosing this to a new employer, to avoid being asked to act in violation of these continuing obligations.
It is worth noting that, in most cases, employers can no longer ask employees to sign non-compete clauses as part of their employment agreement, with limited exceptions. The Ontario Employment Standards Act (ESA) permits non-compete clauses in two scenarios: during the sale of a business, allowing sellers to agree to post-sale restrictions if they become employees of the purchaser, and for executives in specified high-level positions. For more information on this topic, we encourage you to check out our previous blog post: Working for Workers Act, 2021 - Changes to Ontario's Employment Laws.
Conclusion:
The EF Institute case offers valuable insights into competitor hiring, emphasizing the importance of understanding contractual obligations while maintaining ethical standards. By connecting these insights to other considerations for employers, businesses can navigate competitor hiring confidently, fostering a compliant and ethical workforce.
