The drafting of a non-compete and non-solicitation clause must be tailored to each specific situation. Every lawyer tasked with drafting such clauses must keep in mind the Irish proverb: "One must knead according to the flour."
For many, drafting a contract is simply adding one stereotypical clause after another. However, courts regularly remind us that, among other things, the drafting of non-compete and non-solicitation clauses, subject to a penalty clause, must be appropriate and specific to each sale of a business.
Thus, a buyer who has acquired the shares of her co-shareholder in a service company, turns to the Court* to enforce the clauses stipulated in the contract while demanding a certain amount as a penalty.
The court recalls that both non-compete and non-solicitation clauses must be "limited in terms of duration, territorial scope, and prohibited activities." The judge reiterates that such a clause is deemed reasonable "if it does not go further than what is necessary to protect the rights of the buyer."
Although a penalty clause allows the buyer who claims it to avoid "having to prove the damages suffered," the Court concludes that it does not allow her to claim damages without the seller's failure causing her harm or damage. A penalty clause can therefore be considered abusive when there is a disproportion between the provided penalty and the obligation it sanctions.
The drafting of a non-compete and non-solicitation clause must be tailored to each situation. Every lawyer called upon to draft such clauses must keep in mind the Irish proverb: "You must knead according to the flour."
* C.A. Québec 200-09-005695-066
