Non-solicitation clauses are restrictions that seek to prohibit employees from poaching customers or suppliers once they leave for pastures new. These are but one flavour of a number of types of restrictive covenants commonly found in employment contracts, along with non-compete and non-dealing clauses, aimed at protecting the legitimate interests of a business.
Typically, the more senior the employee and the more access they have to sensitive commercial information, the more likely it is that restrictive covenants will be included – and found to be enforceable by courts.
The validity and effectiveness of these clauses in their traditional form when considered in the modern context is sometimes questionable, particularly where social media and LinkedIn are used extensively for professional networking. At the same time, it must be remembered that attempts to strengthen them by imposing overly-restrictive or onerous limits on the activities of former employees will be seen by courts as a restraint of trade, ‘an affront to public policy’ and unenforceable.
LinkedIn: personal or professional?
LinkedIn is the largest professional networking site which boasts more than 225 million users spread across more than 200 countries. While the purpose of non-solicitation clauses is to prohibit former employees from ‘requesting, persuading or encouraging (Towry EJ Ltd v Bennett ) customers or suppliers of their previous employer to do business with them, this is significantly undermined by LinkedIn where connected users are openly accessible to those individuals due to the way LinkedIn is structured.
In short, when an employee leaves a company, notwithstanding a non-solicitation clause, they will still be able to communicate with old clients through LinkedIn. This is mainly due to the fact the departed employee’s contacts will receive automatic updates stipulating information such as the employee has a ‘new job’ or ‘new business deals’ while offering means for ‘getting back in touch’ and suggesting that they ‘congratulate’ the employee. Furthermore, when the employee posts any information related to their new company, those messages will automatically be available to all of their contacts. These updating features are unlikely to breach non-solicitation clauses in themselves. However, LinkedIn also provides a service for users to message each other directly, similar to email which may facilitate breaches.
Effectiveness of non-solicitation clauses
LinkedIn therefore has the capacity to erode the intention of non-solicitation clauses, particularly since non-solicitation clauses are unable to stop business relationships re-forming in the absence of inducement by the ex-employee.
Employers’ should be mindful of whether a non-solicitation clause will be effective in the context of social networking activities on and employees’ public exposure easily garnered with use of LinkedIn if they seriously expect to rely upon this type of covenant.
Protecting customer lists is no longer a question of confiscating rolodexes or preventing employees from taking customer lists when they leave.
A more thoughtful approach is warranted. Consideration of the markets in which businesses operate and what would truly damage the business when an employee went to work with another business in the same sector should be considered.
This more focussed the restrictive covenant, and the more tailored it is to protect the interests of the particular business, the more likely it is to be enforceable.
Rethinking the non-solicitation clause
So, the ubiquity of social networking means that scope of restrictive covenants needs to be rethought, to focus again on the fundamental question of what falls within the scope of the legitimate business interests of a company, in a world which personal contract is less likely to be recognised as an enforceable post-employment limitation.
In Towry EJ Ltd v Bennett , the High Court found there was no breach of non-solicitation clause because of the lack of persuasion by the defendants to induce the clients to transfer their business to the new employer, a key element to substantiate such a claim on the wording of the non-solicitation clause relied upon.
However, in the 2013 case of Whitmar Publications Ltd v Gamage the High Court granted springboard injunctions against former employees who were misusing the company’s confidential information through LinkedIn to poach clients for their new venture.
In this case, the former employees were forced to allow the company to regain access to their LinkedIn pages and were simultaneously prohibited from inducing contractual relations with any of the 450 clients involved in the case. This judgment indicates a degree of reluctance by the courts to allow LinkedIn to be exploited to breach non-solicitation clauses.
Staring down the dragon
LinkedIn and social media services can be problematic for businesses when it comes to trusting employees to do the right thing and having the relevant rights to prevent abuse post-termination of the employment relationship. In order for businesses to protect their client base and restrict former employees from trying to take their clients to new ventures, it is imperative for businesses to think through what they are trying to protect and be precise as possible when setting that out in employment contracts.
It is one thing to economise on properly drafted employment contacts. It is quite another have to stare down the cost, expense and distraction from business associated with the prospect of legal proceedings to prevent former employees doing real damage to the business after so much investment in the relationship during the employment relationship.
In most modern employment contracts, it has become normal to go a step beyond non-solicitation clauses and ensure that there are a suite of restrictive covenants which include ‘non-dealing’ clauses. It does not matter how a contractual clause is referred to. What matters is the precise words used in the clause and the circumstances of the alleged breach of the clause (which may be years after the contract is signed).
Drukker Solicitors advises businesses and employees on the enforceability of non-compete clauses, when they are enforceable and when they go too far and become unenforceable restraints of trade. Call us to find out whether your contracts will perform when put to the test.
So many times have we advised that restrictive covenants are unenforceable because they are too broadly drafted or do not cater for the particulars circumstances and exposure to competition of the business by former employees.
Leigh Ellis advises businesses and employees on the enforceability of non-compete clauses, when they are enforceable and when they go too far and become unenforceable restraints of trade.