December 12th, 2012
The Court of Appeal for Ontario has upheld the enforcement of a non-solicitation clause in an agreement between a dentist and a dental clinic in its recent decision in Smilecorp Inc. v. Daniel Pesin, 2012 ONCA 853. [See the full decision.]
Pesin worked at Smilecorp as a dentist from the summer of 2009 through the fall of 2011 when the relationship was terminated by Smilecorp. Pesin’s relationship with Smilecorp was governed by a confidentiality agreement and a “management agreement.” These agreements provided, among other things, that Pesin would practice dentistry at the Smilecorp premises, and that he would assume responsibility for an existing Smilecorp dental practice. The management agreement provided that Pesin was not an employee of Smilecorp or in partnership with Smilecorp. Although not specifically determined by the Court of Appeal, Pesin appears to have been in a contractor relationship with Smilecorp.
Pesin’s management agreement with Smilecorp provided that the patients treated by Pesin were patients of Smilecorp, and that these patients would remain patients of Smilecorp after Pesin’s eventual departure. Upon Pesin’s departure, patients would be assigned to another Smilecorp dentist. In the event that a patient asked to be provided with Pesin’s new address and phone number, such information would be provided by Smilecorp. However, Pesin was prohibited from soliciting Smilecorp patients in any manner within 24 months after the termination of his engagement with Smilecorp.
After Smilecorp terminated its relationship with Pesin in the fall of 2011, Pesin opened his own dental practice 5 kilometres away from the Smilecorp dental centre. Prior to his termination by Smilecorp, Pesin had made copies of Smilecorp’s patient lists. The Court of Appeal found that he took these lists with the intention of informing patients of the existence and location of his new dental practice.
Smilecorp moved for, and received, an interim and permanent injunction (until October 31, 2013) restraining Pesin from soliciting Smilecorp’s patients on the basis of the non-solicitation clause in the management agreement. This decision was appealed to the Court of Appeal.
The Court of Appeal upheld the decision of the motions judge.
A non-solicitation clause is an agreement in restraint of trade. Agreements in restraint of trade are prima facie void, unless they can be justified as being reasonable with respect to the interests of the parties and the public.
The Court of Appeal held that the non-solicitation clause in this case was reasonable. In particular, the Court of Appeal noted that by the terms of the management agreement, Smilecorp was obliged to provide Pesin’s contact information to patients on their request. Another factor noted by the Court was that Pesin was not prevented from conducting general advertising regarding his new dental practice, or from generally soliciting new patients. Finally, the Court observed that there were no restrictions on where Pesin could set up his dental practice, and that there was nothing stopping him from opening up right next door to Smilecorp.
The motions judge found, and the Court of Appeal agreed, that the scope of the non-solicitation clause was very limited, and only germane to clients of the dentists that operate out of Smilecorp’s premises. As a result, the non-solicitation clause was enforced by the Court of Appeal, and Pesin’s appeal was denied.
Non-solicitation clauses are most often found in two kinds of agreements: employment agreements, and agreements pertaining to the sale of a business. The courts tend to employ a far stricter analysis in considering whether to enforce non-solicitation clauses found in employment contracts. This is because of the inherent imbalance of power between employers and employees as compared to a more level playing field where two business-people are negotiating the sale of a business. In other words, a non-solicitation clause in an employment situation is more likely to be on a “take it or leave it” basis, while such a clause is more likely to have been specifically bargained for in a sale of a business scenario.
Pesin was apparently not an employee, but rather a contractor of Smilecorp. On reviewing the nature of the relationship, the motions judge held that Pesin and Smilecorp had equal bargaining power, and observed that: “Dr. Pesin was not plankton in the jaws of a whale.”
The Court of Appeal in the Smilecorp decision did not discuss the significance of Pesin’s relationship with Smilecorp, or comment on the motions’ judge’s finding of equal bargaining power. In other words, there was no discussion as to whether non-solicitation clauses in a contractor’s engagement agreement should be analysed using the employer/employee standard of analysis, the sale of a business standard of analysis, or something in between. Perhaps the Court felt that the non-solicitation clause in Smilecorp was so minimally limiting that the clause would have survived even on the most stringent of analyses, and that it was unnecessary to address the point. The issue remains open for consideration by a future panel of the Court.