An NDA that protected the numbers, and not the people

The situation

A four-person leadership team ran a $9.1M-revenue mechanical and HVAC contracting company out of Dartmouth, Nova Scotia, and engaged a business broker to run a confidential sale process. Four parties signed the broker's standard confidentiality agreement before receiving data-room access: a defined-term restriction on using or disclosing “Confidential Information” for any purpose other than evaluating a possible transaction, a requirement to return or destroy materials on request, a two-year term, and the usual acknowledgement that a breach would cause irreparable harm justifying an injunction. It did not contain a standstill, and it did not contain a clause restricting either side from soliciting or hiring the other's employees.

One bidder — a larger, out-of-province mechanical contractor expanding into Atlantic Canada — went further than the others. Over eleven weeks it reviewed the data room, visited two job sites, and sat through two rounds of management presentations that included the company's estimating manager, who had built and held the relationships behind most of its repeat commercial accounts.

The problem

The bidder withdrew, citing capital allocation elsewhere in its network — a common and unremarkable reason to end a process after real diligence has occurred. Six weeks after that, the vendor's CEO learned from a mutual client that the estimating manager had resigned and started the following Monday at the bidder's new Atlantic regional branch.

The CEO's first instinct was that the confidentiality agreement must cover this. It was signed specifically so the bidder could see the business up close; using what it saw to go hire the person who ran the largest piece of it felt like exactly the kind of thing the agreement should have stopped. The broker pulled the signed copy. It restricted what the bidder could do with information. It said nothing at all about who the bidder could hire.

The numbers

The deal that did not happen had been discussed around $6.2M of enterprise value, roughly 2.9x normalized EBITDA. The estimating manager personally ran approximately $3.6M of the company's $9.1M in annual bid volume — about 40% — and was the only point of contact on two of the firm's four largest recurring commercial accounts.

Within four months of his departure, both of those accounts had requested competing quotes from his new employer. Neither had formally moved by the time the vendor's broker restarted the sale process, but both were now dual-sourcing where they had previously been sole-sourced. Replacing the estimating role — recruiting, onboarding and rebuilding client trust — took the company roughly seven months, during which two new-business opportunities were bid late or not at all.

The rule that decided it

There is no statute here. A confidentiality agreement is a contract, and its enforceable content is whatever it actually restricts — nothing more. Confidentiality and non-use obligations protect information: what may be looked at, what may be shared, what must come back. A non-solicitation covenant protects a different interest — the workforce and relationships that make the business run — and it has to be its own, separately negotiated term. One does not imply the other.

Ontario's ban on general employee non-competition agreements, added to the Employment Standards Act, 2000 effective October 25, 2021, is sometimes reached for here and does not apply: it restricts an employer's agreement with its own employee, and even where it applied it would not touch an ordinary non-solicitation covenant, which is a different instrument aimed at a different party. This case has neither party in that relationship — it is two prospective transaction counterparties, not an employer and its employee — and no confidentiality obligation, however broadly it defines Confidential Information, converts itself into a restraint on hiring simply because hiring was made easier by what diligence revealed.

Nothing here suggests the estimating manager took a client list, pricing model, or other document out the door with him. Had he done so, that would be a breach of the confidentiality and non-use obligations the agreement actually contains — a different, provable claim, and one the agreement was built to support. Being a capable person the bidder met, liked, and later hired is not that.

One more statute is worth ruling out rather than assuming away: the Competition Act's criminal no-poaching offence, in force since June 2023, catches an agreement between unaffiliated employers not to solicit or hire each other's staff. It has no application here in either direction — there was no such agreement between the two companies, and the absence of one is exactly the vendor's complaint, not a violation of the section that punishes making one.

The outcome

Counsel's advice was blunt: there was no covenant to enforce, and threatening litigation over an agreement that did not say what the CEO wished it said would cost more than it could recover. The company restarted its sale process with a different broker three months later, and the confidentiality agreement used for that second process added an eighteen-month mutual employee non-solicitation clause, scoped to employees each side actually met during diligence, negotiated and disclosed as its own line item rather than assumed to already be covered.

What it would have cost otherwise

Suing on a contract for a promise it never made is not a live risk here — there was nothing to enforce — but the near-miss is instructive about what the absence actually cost. Had a non-solicitation clause been in place from the start, the estimating manager's hire would have required the bidder's consent or a defined carve-out, and the two accounts that began dual-sourcing likely would not have had the opportunity to test an alternative supplier mid-transaction. The seven months of rebuilding, and the two bids that went out late, are the real price of a gap in a template — not of any bad faith on the bidder's part, which broke no promise it had made.

The tell

The tell was in the management meeting itself, not in anything the agreement said afterward. The bidder's corporate development lead asked, twice, unprompted questions about which of the leadership team the vendor considered irreplaceable — a natural diligence question in isolation, and in hindsight a signal that the value the bidder was assessing included specific people, not just the numbers behind them. A confidentiality agreement drafted before that meeting, when the only thing anyone thought needed protecting was financial and customer data, is the wrong document to protect against it after the meeting has already happened.

Takeaways

• • A confidentiality agreement protects information; it does not, on its own, restrict who a counterparty may later hire.
• • A non-solicitation-of-employees clause is a separate, freestanding covenant and has to be negotiated as one — it is not a natural extension of a non-disclosure obligation.
• • Ontario's 2021 non-compete ban in the ESA governs employer-employee agreements and does not reach this fact pattern in either direction.
• • If a management presentation is going to expose specific people, not just data, decide before the meeting whether the confidentiality agreement needs a people clause — not after a bidder walks and later hires one of them.
• • A signed-but-unused non-solicit clause costs nothing if the deal never happens with that bidder; its absence costs whatever the departing employee was worth if it does.

Sources

• • No statute was found to govern what a confidentiality agreement restricts between prospective transaction counterparties, after specifically checking for one rather than assuming its absence. Three candidates were checked and ruled out: the Employment Standards Act, 2000 s.67.2 non-compete ban (below); the Competition Act s.45(1.1) no-poaching offence, which criminalizes an agreement between unaffiliated employers not to solicit each other's employees and so has nothing to say about the absence of one; and Canada's general law of confidential information, which is common-law breach of confidence — there is no federal or provincial trade-secrets statute creating a duty independent of what the parties actually agreed. The content of the obligation is therefore set entirely by the agreement's own drafting, and Canadian courts do not imply a restraint on soliciting or hiring — including one arising from information learned in diligence — that the agreement itself does not contain.
• • Ontario's ban on general employee non-competition agreements sits in the Employment Standards Act, 2000, s.67.2, effective October 25, 2021 — checked and ruled out. It restricts an employer's agreement with its own employee and has no application between two prospective transaction parties, in either direction.
• • Competition Act, R.S.C. 1985, c. C-34, s.45(1.1), in force June 23, 2023 — checked and ruled out. It makes it an offence for unaffiliated employers to agree not to solicit or hire each other's employees; a bidder that made no such agreement, and simply hired someone it met in diligence, has not engaged the provision it exists to punish.
• • Treadstone Law — employee non-solicitation clauses in an Ontario business purchase agreement — explains the same underlying distinction this file turns on, that confidentiality and non-solicitation are separate covenants doing separate jobs. Its context is the reverse of this one: a completed purchase agreement restraining the seller from later hiring away the buyer's new staff, not a bidder's confidentiality agreement signed before any deal closed. The distinction between the two clause types is the same either way.
• • Treadstone Law — confidentiality during an Ontario business sale — background on why confidentiality is typically the first document signed in a sale process and what it is generally used to protect. It does not address employee solicitation specifically; the provisions above are what this file turns on.
• • Glossary — confidential information memorandum and non-solicitation covenant.