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Business Protection – Non Solicitation Clauses

Meredith Hurst Wednesday, March 14, 2012

A common issue in many businesses is failing to properly consider and address the risk posed by employees if their employment is terminated. Employment lawyers see all variations of the problem. In some situations an employee is never given a contract of employment at all, and therefore the business is left without protection when that person leaves.

In other cases, an employee is given a junior contract, then work their way up through a business to the point where they have a significant amount of contract and control over your clients. If their contract has never been updated, other than perhaps the odd letter confirming a pay rise, your business will again have no protection should they decide to leave, set up a firm 100 yards down the road, and service all your customers.

Sometimes, contracts are bought 'off the shelf' and never tailored to the individual circumstances of a particular business. This can either lead to the wrong clauses being included in the first place, or sometimes clauses which are too restrictive being included, which are then totally unenforceable.

The recent case of Towry EJ Limited v Barry Bennett and others looked at what "solicitation" meant in a post termination non solicitation clause.

Mrs Justice Cox held in the High Court that it should generally be defined as meaning if an employee "directly or indirectly requests, persuades or encourages clients of their former employer to transfer their business to their new employer".

The case also looked at how an employer can actually show that a former employee has solicited former clients in breach of a non solicitation clause, and in particular whether this can be inferred from the fact that a "tidal wave" of clients have moved across to the new business, in the absence of any primary evidence of 'requesting', 'persuasion' or 'encouragement' by the former employee.

Mrs Justice Cox said "no". The Claimant was not able to show that the clients had moved due to any 'request/persuasion/encouragement', rather than a simple desire to continue to deal with the former employee, and with the burden of proof squarely on the employer to show such 'solicitation', there would be limited situations where the employer could provide the necessary proof of solicitation.

This case illustrates the difference between a "non dealing" post termination restriction and a significantly less strong "non solicitation" clause. Had the employees had non dealing clauses in their contracts, their conduct would have been straightforwardly unlawful.

The moral of this story? Check your contracts, check that they cover the situations your business might face, and if they do not look for the next opportunity to correct this risky situation.