As a business owner, your customers and clients will likely be your most valuable asset. For this reason, it is essential that you protect your business against poaching and solicitation by an employee after their termination of employment. Through careful drafting of your employment agreements, you can deter and prohibit this behaviour from employees. This article will explain how you can stop an ex-employee from poaching or soliciting your business’ customers or clients. Specifically, it will outline what clauses will be essential to include in your employment contracts, and also offer some helpful tips for dealing with an ex-employee who is in breach of their obligations.
How Can I Protect My Business Through Employment Contracts?
Whilst having employment contracts in place is not a legal requirement, they will be the primary source of protection for your business in limiting solicitation and poaching by current and former employees. As an employer, you can rely on carefully drafted clauses where an employee contravenes their agreement with you. For example, you might be able to take disciplinary action against a current employee or bring a breach of contract claim against ex-employees. Having a lawyer review or draft your employment contracts would be prudent.
To prevent, or at the very least, deter poaching and solicitation of clients (and employees of your business), it is essential that the following clauses are included in your employment contracts:
- a confidentiality clause;
- a restraint of trade clause (with clear definitions of a restraint period and restraint area); and
- a clause confirming the survival of these clauses post-termination.
Restraint of Trade Clause
Whilst restraint of trade clauses are generally unenforceable at first instance as a matter of public policy, their inclusion in your employment contracts will be the best starting place for initiating action against an ex-employee who is poaching your clients. When determining whether restraint of trade clauses are to be upheld, courts will consider the following factors (among others):
- the negotiation process, and in particular, comments made when negotiating restraint clauses;
- the bargaining position of the parties. Was there an imbalance in power between the employer and the employee at the time of agreeing to the restraint? Did the employee have the opportunity to obtain legal advice?;
- the nature of the employer’s business and the characteristics of the employee. The closer the employee is to the employer’s customers, the more likely the restraint will be reasonable;
- what legitimate business interests are being protected;
- whether any consideration was given for the restraint; and
- the duration of the restraint, and the geographical area. The longer the time and wider the area, the less likely it will be reasonable. This can often be resolved by cascading clauses relating to time and area.
Confidentiality Clause
When attempting to poach clients, ex-employees will likely rely on your business’ confidential information. What is considered ‘confidential’ must be clearly defined in the employment contract, and generally includes:
- valuable trade secrets;
- client lists;
- financial information; and
- any other specific information or systems the employee will be exposed to in their role.
Additionally, your confidentiality clause should require your employee not to disclose confidential information to unauthorised people, or otherwise misuse it. It should also require that all confidential information must be delivered up or destroyed at the termination of employment. This will limit the company’s risk exposure, and ensure that the expectations and obligations of employees are clear from the outset.
Remind the Employee of Their Legal Obligations Upon Termination
Whether the termination of the employment relationship was friendly or not, it is good practice to issue a notice to your employee at the end of the employment relationship which restates their ongoing contractual obligations. This notice should clearly refer to the relevant clauses in your employee’s employment contract. A lawyer can assist you with drafting a reminder of obligations notice.
Take Action
There may be instances where your departing or ex-employee, unfortunately, poaches or attempts to poach your business’ clients. If a well-drafted contract is in place, this will likely amount to a breach.
If you believe a former employee is breaching a restraint or misusing confidential information, it’s important you act fast. You should ensure to gather as much evidence of the breach as possible. Often, a clear and well-drafted cease and desist letter will do the trick. In some cases, you may need to consider taking legal action in court to put an end to their action and protect your valuable business interests.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
When an ex-employee poaches your clients, your business may suffer significant loss. For this reason, you must ensure that you have well-drafted employment contracts in place and that you act quickly where you suspect poaching may be occurring.
If you have a problematic ex-employee and are not sure of what steps you can take, or if you need assistance with drafting your employment contracts, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
There are several tools at your disposal. They include ensuring you have well-drafted restraint and confidentiality clauses in your employment contracts. You can also remind your employees of their obligations upon termination of their employment. Likewise, you should take swift action when you believe an employee has breached their confidentiality agreements. You should also implement policies that ensure your employees hand over any confidential documents they have access to when their employment ceases.
If an ex-employee breaches their confidentiality obligations after their employment has ended, you may wish to send them a cease and desist letter. If they do not, you may need to apply for an interlocutory injunction to request the court make an order to have them temporarily stop until the matter is heard in court, at which stage you may pursue civil action.
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