ONCA puts Dent in Dentist's Business

How enforceable is a non-solicitation agreement in an Ontario employment contract? According to a decision released earlier today by the Court of Appeal for Ontario, Smilecorp Inc. v. Pesin, 2012 ONCA 853, sometimes the answer is “very enforceable.”

Facts

As set out in the Court’s reasons for decision:

The appellant, Daniel Pesin, is a dentist. In the summer of 2009, he agreed with the respondent, Smilecorp Inc, that he would carry on his dental practice at a dental centre owned and operated by Smilecorp in Whitby, Ontario.  Under the parties’ arrangements, Dr. Pesin assumed responsibility for the existing dental practice at the Centre (the dental care of patients who had previously been treated by other dentists at the Centre), and for the dental care of new patients attracted to the Centre through Smilecorp’s advertising efforts. The impugned provision provided that:

Upon the expiry or termination of this Agreement or any renewal thereof, for a period of twenty-four (24) months thereafter, the Dentist covenants: (1) not to solicit, contact, invite or encourage either directly or indirectly, in any manner whatsoever, any patients of the Dental Practice to seek dental treatment ... at any location other than at the Premises (2) not to send any announcement, advertising flyer, notice or any communication directly or indirectly to his patients announcing the change in location of the Dental Practice to another location ...

In the fall of 2011, Smilecorp terminated its arrangements with Dr. Pesin at the Centre.  Shortly before his receipt of Smilecorp’s notice of termination – and without Smilecorp’s prior knowledge or consent – Dr. Pesin made copies of all the patient lists at the Centre.  When Dr. Pesin left the Centre to establish a dental practice at a new location situated approximately five kilometres from the Centre, he took the lists with him with the intention of informing the patients of the fact and location of his new dental practice.

Upon Dr. Pesin’s departure from the Centre, the dental care of patients at the Centre was assumed by a new dentist who had previously worked at the Centre. No disruption of dental care for patients occurred and patients were notified by the new dentist of the change in dental care providers.

Smilecorp took the position that Dr. Pesin’s copying of the patient lists, his removal of the lists from the Centre, and his plan to thereafter contact patients violated the terms of the parties’ contractual arrangements including, in particular, a non-solicitation covenant in favour of Smilecorp given by Dr. Pesin. 

In early November 2011, Smilecorp applied to the Superior Court for an interim and permanent injunction, until October 31, 2013, to restrain Dr. Pesin from: (1) “soliciting, contacting, inviting or encouraging” any current or past patients of the dental practice previously carried on at the Centre to seek dental treatment at any location other than the Centre; and (2) sending “any announcement, advertising flyer, notice or any communication ... to the patients of the dental practice carried on at the Centre or announcing the change in location” of Dr. Pesin’s practice, among other declaratory and injunctive relief.

By judgment dated March 27, 2012, the application judge (the Hon. Justice Hugh K. O’Connell) granted the requested injunction and associated declaratory relief.  He also ordered Dr. Pesin to return all confidential information removed by him from the Centre, including patient records and lists of patients and their contact information.

Dr. Pesin appealed.

Decision of the Court of Appeal

Writing for the unanimous bench the Honourable Justice Cronk (Justice Juriansz and Associate Chief Justice O’Connor concurring) held that the appeal was to be dismissed.

In holding that the Centre had a propriety interest worthy of protection Justice Cronk noted that:

In essence, therefore, Dr. Pesin contracted to obtain the benefits of a ‘turn key’ dental practice built by others.  By executing the management agreement, he gained an existing patient base, attracted and developed by Smilecorp and other dentists at the Centre, in exchange for his non-solicitation covenant, his professional services and his commitment that, when he left the Centre, those patients treated by him would remain at the Centre as patients of another dentist unless the patients elected otherwise.  As the application judge held, at para. 76, the enticement to sign the management agreement with Smilecorp was the existence of “a built in client base and goodwill associated with the Centre”. [Para. 30]

In holding that the agreement was enforceable, Justice Cronk highlighted several key features of the agreement, including:

(1) a specific acknowledgement by Dr. Pesin that the non-solicitation covenant was “reasonable and valid” and that Smilecorp was entitled to injunctive relief, as well as damages, for any breach of the covenant;

(2) preservation of patient choice regarding a patient’s selection of dental provider, by reason of the patient-notice provisions of the agreement;   

(3) a commitment by Smilecorp to inform patients, at their request, of Dr. Pesin’s co-ordinates upon the relocation of his practice;

(4) preservation of continuous dental care for patients treated by Dr. Pesin in his dental practice at the Centre; and

(5) a commitment by Dr. Pesin that, upon termination of the management agreement, he would not remove any information related to his practice from the Centre, including any patient lists, records or personal patient information.

Moreover, as Justice Cronk observed,

The ambit of the non-solicitation covenant is itself constrained. As Smilecorp emphasized during oral argument, nothing under the management agreement prevents Dr. Pesin from advertising generally concerning the relocation of his practice.  Put another way, the non-solicitation covenant does not prohibit Dr. Pesin from soliciting patients generally.  Instead, the covenant merely prevents Dr. Pesin from communicating with those patients treated by him at the Centre, except in the manner agreed to and described in clauses 19 and 20 of the management agreement. [Emphasis added. Para. 36]

Commentary

In my opinion the case demonstrates a fine example of employment agreement drafting. I do not know who drafted the employment agreement, but they are to be commended; Smilecorp clearly got its money’s worth.

In my opinion the agreement is well balanced, and the highlighted provisions above bring the agreement into conformity with Justice Conway’s decision in Aquafor v. Whyte, Dainty and Calder, 2010 ONSC 2733 (CanLII), blogged about by me earlier in my post titled Social Media and the Rule against Solicitation, concerning a client’s rights to choose their professional and the ability to advertise broadly.

Were one to ask, my opinion would be that Dr. Pesin got a little over ambitious by taking the client list and then acting on it in the way in which he did; the engineers’ approach in Aquafor provides a better example of how to retain one’s clients while respecting a non-solicitation agreement.

Takeaways

The takeaways for employees is that sometimes a non-solicitation agreement will be found to be enforceable, and in those cases where employees choose to violate such agreements consequences will follow. If you have a non-solicitation provision in your agreement it would be prudent to seek professional legal advice before taking any action to solicit business. If you’re in Ontario, the employment lawyers at Kelly Santini LLP would be happy to be of service to you.

The takeaway for employers is that if you have a well-drafted employment agreement, the courts will enforce it. If you are looking to employ a new professional or executive, or are concerned about a lack of such a provision within an existing employee’s agreement, the employment lawyers at Kelly Santini LLP would be happy to be of service to you.

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As always, everyone’s situation is different.  The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He tweets from @SeanBawden.