EMPLOYERS will often attempt to protect their business interests by including post termination restrictions in the contract of employment.
Most commonly, these will relate to a restriction on soliciting customers and clients of the business once an employee has left.
A recent case in the High Court has examined the extent to which an employer must show there has been solicitation before a positive finding will be made.
The employer in this case provided financial advice to investors and under the contract of employment prevented employees from soliciting, canvassing or endeavouring to solicit or canvass business from any active customer.
Seven employees left the business to join a competitor. A significant number of clients requested that their files be moved from the old employer to the new employer. The former employer brought proceedings alleging that the former employees had breached their contracts by soliciting clients to transfer their files.
The High Court concluded that there had been no solicitation of former clients by any of the employees. The very fact that there had been a transfer of business was not sufficient to prove that there had been solicitation, and the court took notice of the following facts:
l The new employer proceeding cautiously to ensure that the employee’s complied with their non solicitation obligations
l The new employer stated that the covenants from the previous employment were breached their employment would be terminated
l Clients transferring their files were asked how they had heard about the new employer, which in turn provided evidence that there had not been solicitation by the employees
l Evidence given by some of the individual clients showed that there were other reasons for transferring their business rather than active solicitation
l There was a high degree of client dissatisfaction with the previous employer and the new employer has a better presence in the local community with regular face-to-face contact which produced lasting relationships of trust and confidence
The focus of previous disputes in the courts has more frequently been on the lawfulness and enforceability of the particular restrictive covenants.
This case now highlights the importance of evidence where breach of restrictive covenants is alleged.
A belief that there must have been a breach simply because of the number of clients transferring their business is insufficient.
Conversely, if new employers and the defendants can produce evidence to show awareness of obligations, a discouragement of solicitation and alternative reasons for the transfer of customers, this will assist in defeating claims brought by former employers.