|Preventing Former Employees Contacting Your Clients - Newsletter Article 30/05/08
Through the use of contractual provisions, employers often look to restrain ex-employees from contacting and dealing with their former clients. Employers may protect their interests by imposing post-employment restraint clauses or by relying on the duty of confidentiality imposed on ex-employees.
Restraints of trade
Restraint of trade clauses are commonly used by employers in employment contracts to prevent former employees from competing with their employer or working for a competitor for a set period after the termination of employment. Such clauses are enforceable if they are reasonable and not simply intended to stop competition. Employers do have rights to protect their established customers and connections.
Breach of duty of confidentiality
The term “confidential information” refers to information that an employee is not free to use or disclose due to an implied or express term in the contract of employment. Whether information acquired by an ex-employee is regarded as confidential depends on how the information was acquired. Information obtained by the employee during the ordinary course of their employment such as know-how, skill or experience is not regarded as confidential. Information an employee obtains through steps such as photocopying documents or memorizing customer lists amounts to a breach of those confidentiality obligations.
Stricter enforcement of confidentiality obligations of ex-employees?
Until recently, in the absence of a non-solicitation clause, ex-employees who have retained by memory information acquired during their employment have not been held to have breached their post-employment confidentiality obligations. However recently, in a NSW decision of Great Southern Events Pty Ltd v Peskops, an employee who was a former sales and marketing manager and set up a business in competition with her former employer, an events management company, was restrained by an injunction, preventing her from contacting four clients. There was no clause in the contract restraining the employee from soliciting clients of the employer and the only obligations derived from the presence of a confidentiality clause in the contract. The employer argued that dealings with former clients would necessarily mean using confidential information obtained during her employment; there was no suggestion she had deliberately memorized or copied lists.The Court felt that the employee’s dealings with former clients could not realistically take place without the use of confidential information. Consequently, the employee should not deal with the former clients in any way.
The injunction was granted at the interlocutory stage before consideration of all factual and legal arguments. Employers looking to restrain ex-employees from contacting clients must ensure that they use properly drafted employment contracts which include both an enforceable non-solicitation clause and a confidentiality clause. Generic clauses should be avoided as well, and thought should go into each and every employment contract.