Post-Employment Non-Solicitation Restraints: When Does Solicitation Occur?

By Joe Catanzariti & Abraham Ash

Posted: 21st February 2013 09:11

Post-employment restraint litigation is becoming increasingly common in Australia.  Post-employment non-solicitation restraints are seized upon by employers distraught at seeing former employees solicit the business of their valued clients. 
 
However, if a restrictive covenant prohibits solicitation, does that mean a former employee can simply sit back and wait until a client approaches him or her?  The simple answer is "not necessarily".  This article briefly considers a number of Australian decisions addressing non-solicitation cases, and how they can be reconciled. 
 
Planet Fitness Pty Ltd v Brooke Dunlop & Ors [2012] NSWSC 1425
 
Planet Fitness Pty Ltd operates a gym in Lambton, Newcastle.  Planet sought to enforce a restraint of trade clause against the first defendant, Ms Dunlop who provided services as a personal trainer to Planet clients. 
 
Ms Dunlop's restraint clause required her not to solicit, canvass or secure the custom of any clients of Planet.  However, White J held that there was no prohibition on Ms Dunlop from entering into an employment contract with another gym to provide personal training services.  Nor was there a restriction on who she could train, so long as those who sought her services were unaffected by solicitation or canvassing efforts and who would have followed her in any event. 
 
White J acknowledged that there was a strong prima facie case that Ms Dunlop had solicited or canvassed persons via her Facebook page, for whom she provided personal training services when she was contracted by Planet. 
 
Orders were ultimately made to restrain Ms Dunlop from making further attempts to solicit, canvass or secure the customs of persons who were clients of the plaintiff during the relevant periods, including the removal of offending Facebook posts and prohibiting any new postings on her Facebook page of the kind previously made. 
 
Barrett & Ors v Ecco Personnel Pty Ltd [1998] NSWSC 545
 
In Barrett, the Court considered whether, when a client of an employer makes the first approach to an ex-employee, the ex-employee will be in breach of his or her contract of employment, where a post-employment restraint clause provides that an ex-employee will not:"canvass, solicit, interfere with or entice away any person, firm or company… being a client or employee of the Employer."
 
Mr Barrett argued that since the client provided the invitation or "window of opportunity" then he could not be guilty of soliciting or canvassing, in breach of his post-employment restraint agreement.  However, the Court of Appeal concluded that whether an approach by a client was a "catalyst or trigger" for the solicitation of Mr Barrett does not make him any less the "mover" for the action happening.  That, so long as a proposal is accepted, soliciting extends to circumstances where a client instigates to reconnect with a former employee. 
 
In contrast with the cases above, in Koops Martin v Dean Reeves [2006] NSWSC 449, Brereton J (at [12]) held that:
"Accepting instructions to act for former clients who initiate contact with the departed employee is not within the concept of "solicitation" or "enticement", which involve action initiated by the former employee, as distinct from responses to approaches from former customers."(1)
 
Reconciling the Cases
 
So, when is solicitation by a former employee said to occur?  The judgments mentioned above show consistency in circumstances where a client has already severed ties with the former employer and, therefore, no instances of enticement or solicitation away from the former employer can be satisfied. 
Solicitation or enticement arise when the former employee has taken "any step or action" in attempting to secure the client away from the former employer.  For example, completing a proposal for a client or providing relevant information on the new employer will constitute solicitation despite the former employee being approached by the client.(2) If a client approaches the former employee and no action is required on the part of the former employee to secure their services, then solicitation cannot be said to have occurred. 
 
Non-Compete Clauses
 
A frequent tactic adopted by Australian employment lawyers is for an employee subject to non‑competition and non‑solicitation post‑employment restraints to undertake not to solicit an employer's clients and not to use any confidential information, the effect of which might make it more difficult for the aggrieved employer to seek the protection of further court orders seeking to enforce the post‑employment non‑solicitation restraints.
 
So, why would a non-competition restraint be necessary if an employee promises not to deal with any alleged client of the employer?  There may well be occasions when non-solicitation clauses are insufficient to protect an employer's interest.  Notably, where there have been strong connections between clients and a former employee and a client may well take their business to the former employee without any solicitation. 
 
Insufficiency of a non-solicitation restraint was further present in Justice Brereton's decision inKoops.  Brereton J however maintained that a non-dealing clause, not a non-compete clause, will be necessary when it would be difficult to provide proof of solicitation and, more importantly, where the former employee has a strong personal connection with the employer's clients. 
 
Justice Brereton found that a restraint that goes beyond a non-solicitation clause, most notably a non-dealing restraint, will be reasonable where an employer is attempting to protect their customer connections and as such, stop the former employee having any contact with its clients at all. 
 
There have been many Australian cases upholding a non-competition restraint clause.  The decision of which restraints to include within an employment contract will depend upon what precisely the employer is attempting to protect.  Upon investigation of the relevant case law it is apparent that a non-solicitation restraint in conjunction with a non-dealing restraint will be sufficient to protect an employer's concerns that there exists a strong personal connection between their clients and the former employee.  However, if a primary concern of the employer is the protection of confidential information, then it may become necessary for a non-competition restraint to be included, i.e. if there is a non-dealing clause, it then probably comes down to whether the non-compete restraint is also necessary to protect confidential information.
 
Lessons
 
Employers must be aware that the first step with respect to attempting to restrain a former employee from breaching the terms of a non-solicitation clause will be to ascertain what the clause means and what conduct is prohibited by the clause.(3)  Therefore, a non-solicitation clause should be drafted clearly in a manner which precisely sets out the conduct which is to be prohibited. 
 
When examining whether a non-solicitation provision is against public policy the court will particularly scrutinise whether the non-solicitation restraint is reasonable in order to protect a legitimate interest of an employer, with commonly relied upon interests being a company's confidential information and/or the company's customer connections.(4)  To determine whether the restraint protects a company's confidential information or a company's customer connections will again depend upon the construction and wording of the clause.  If a legitimate business interest exists, such as a company protecting its customer connections as its main source of income, then a reasonable restraint will be upheld. 
 

Joe Catanzariti is a senior partner and Abraham Ash a senior associate for the National Clayton Utz Workplace Relations, Employment and Safety Group. Joe and Abraham are trusted advisers to many of Australia's government departments and ASX 200 clients, advising on all aspects of employment law and workplace relations.  Their depth of experience has afforded them unique insight into the design and development of long term employment relations and risk management strategies.
 
For further information on employment law, please visit www.claytonutz.com or contact Joe on jcatanzariti@claytonutz.com or Abraham on aash@claytonutz.com.


(1)Brereton J cited Austin Knight (UK) Ltd v Hinds [1994] FSR 52.
(2)Barrett and Ors v Ecco Personnel Pty Ltd [1998] NSWSC 545
(3)Reeves v Koops Martin Financial Services Pty Ltd [2006] NSWCA 221
(4)Reeves v Koops Martin Financial Services Pty Ltd [2006] NSWCA 221 [7]

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