A non-solicitation covenant on a Canadian business sale restrains the seller from approaching the customers, employees or suppliers of the business just sold, without stopping them from working in the same industry.
The distinction from a non-compete is one of scope, not enforceability. As Treadstone Law puts it, non-solicitation “stops the seller from approaching the customers, employees and suppliers of the business sold” rather than stopping them from competing at all — an approach that is “narrower, easier to justify and easier to enforce, and in most small deals it protects the thing the buyer actually paid for.”
A non-solicit aimed at a seller’s former employees sits close to a line Canadian competition law treats as criminal. Competition Act s.45(1.1) makes it an offence for an employer to conspire, agree or arrange with “another employer who is not affiliated” with it “to not solicit or hire each other’s employees,” punishable on indictment by “imprisonment for a term not exceeding 14 years” under s.45(2). What saves a genuine sale-of-business non-solicit is s.45(4)’s ancillary restraints defence, which applies where the restraint “is ancillary to a broader or separate agreement or arrangement that includes the same parties” and “is directly related to and reasonably necessary” for it. A buyer and seller who compete with each other before closing are exactly the parties s.45(1.1) is aimed at — the defence is what lets a properly scoped, genuinely sale-linked non-solicit stand apart from an unlawful no-poach pact between two ordinary competitors.
Suppose a buyer acquires a seller’s HVAC company, and the purchase agreement includes a three-year covenant preventing the seller from soliciting the acquired company’s technicians or customers. Standing alone between two competing HVAC firms, an agreement “not to hire each other’s employees” is exactly the conduct s.45(1.1)(b) criminalizes. Because this non-solicit is written into, and reasonably necessary to protect the value of, a genuine arm’s-length sale agreement — and is no broader than the sale requires — it falls within the s.45(4) ancillary restraints defence rather than the criminal prohibition.
See also: Non-competition covenant, Pre-merger notification
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