Employers in businesses that are dependent upon good relationships with clients in a competitive industry often wish to include restraints in their employee’s employment agreement.
There are two common types of restraints that we often see. These are:
- Restraint of trade: where the employee is prohibited from working in the same industry as the employer within a certain distance of the employer’s premises, for a certain amount of time after employment ends.
- Non-solicitation: where the employee is prohibited from ‘soliciting’ clients of their former employer, for a certain period of time after employment ends.
This article focuses on what a non-solicitation clause means in practical terms.
What does it prevent the former employee from doing?
Let’s use an example of a hairdresser.
For the period of time set out in the agreement (let’s say three months) the former employee cannot directly contact clients at his or her old job to invite them to move to the new salon. The former employee can’t ring them or try to be subtle and say “here is my new business card for where I’m working now”.
If the former client hunts the hairdresser down and approaches them to do their hair, provided the hairdresser hasn’t approached them, this is probably ok.
Because life isn’t simple, however, there are a number of grey areas that arise. And because people tend to get really territorial about their client base, arguments about non-solicitation clauses arise all the time.
Former employees often ask: how can I advertise myself in my new position without breaching my non-solicitation clause? Former employers often ask: is this breaching the former employee’s non-solicitation clause?
One case that made its way to the Employment Relations Authority was where the former employee left the beauty salon she worked at and set up her own salon. She placed an ad in in a widely circulated newspaper that was delivered in the general area of the previous employer.
This did not constitute solicitation of clients and did not breach the non-solicitation clause. Just because some of the previous clients may have seen that newspaper advertisement, the Authority found this was not solicitation.
The Authority said if individuals were unable to make a general advertisement in a general newspaper due to a non-solicitation clause with their previous employer, the former employee would be prevented from advertising for several months. This would go against the general principle that no business can generally prevent other businesses from competing with it.
Barry was a mortgage broker and updated his Linked in profile to include the new company he worked for after leaving his former employer. He also sent a message to an old friend saying “I work for Company X now, here is my new number.
The High Court considered whether this was a breach of Barry’s non-solicitation clause. The Court looked at an overseas case where a businessman updated his LinkedIn profile to announce that he had a new job, and shared a link to his new employer’s website encouraging his followers to “check them out”. The overseas Court said this was not a breach of the non-solicitation clause.
The High Court looked at Barry’s case and said that this sort of update was a common occurrence on LinkedIn and did not amount to solicitation. Former clients would have had to actively search for Barry to see this, and there was no evidence that it was used to ‘solicit’ former clients.
Professional Organisation Pages
Barry also advertised himself on the Mortgage Brokers professional organisation website; he described himself and said he was now operating under this new company.
The High Court said that ‘solicit’ could mean that a presence and willingness to do business with a former client may breach a non-solicitation clause in an agreement. However, the Judge said that Barry’s listing on the Mortgage Broker’s website was too far removed from the former clients to amount to solicitation. Again, they would have had to actively search for Barry to see this new update.
As an employer, it is important you understand that if you want to add restraints into an employment agreement they must be reasonable, and the practical reality is that such clauses may not always achieve the result that you think they will. Non solicitation clauses can often achieve exactly what restraint of trade clauses try to do (protect your client base) and the Courts will uphold non solicitation clauses far more readily than restraint of trade clauses.
As an employee, if you have a restraint or non-solicitation clause in your employment agreement, it is important that you understand how they affect you when employment ends. The cases reveal that if you are subject to a non-solicitation clause and want to advertise your new job and/or business, that general advertising and updating your professional status online, will generally not constitute ‘solicitation’. Be aware however that a reasonable restraint of trade clause will be enforced by the Courts.