Non-Solicitation Clauses — How to Protect Your Business When Employees Leave

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.

The Risk of Outdated or Missing Contracts

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.

What Does ‘Solicitation’ Actually Mean?

The recent case of Towry EJ Limited v Bennett [2012] EWHC 224 (QB)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”.

Can You Infer Solicitation From Client Losses?

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.

Non-Solicitation vs Non-Dealing — the Critical Difference

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.

What Employers Should Do Now

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.

For advice on reviewing or drafting restrictive covenants, see our employment contract lawyers page. Employees concerned about non-solicitation obligations in their own contracts can find guidance on our restrictive covenants for employees page.

Where a departing employee is also a director, post-termination restrictions interact with broader director duties and potential misfeasance claims. Our post on breach of director duties covers the full picture.”

Non-solicitation clauses work best alongside robust confidentiality protections — see our post on protecting confidential information for guidance on the full picture.