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Non-Solicitation Clauses in employement contracts

CATEGORY: EMPLOYMENT

Non-Solicitation Clauses in employement contracts

What are non-solicitation clauses contained in employment contracts?

Non-solicitation clauses are contractual terms contained in employment contracts, restricting an employee from soliciting and/or canvassing, directly or indirectly, business or custom from employer’s clients, post-termination of his/her employment with the employer.

Are non-solicitation clauses easily upheld by the Courts?

It shall be stressed at this point that Courts are not willing to uphold non-solicitation clauses, unless it can be proved by the employer that he/she has a legitimate proprietary interest that needs to be protected against the employee in question and that the protection sought by the enforcement of such non-solicitation clauses goes no further than what is reasonably necessary, having regard to the circumstances and the facts of each individual case(Office Angels Ltd v Rainer-Thomas and O’Connor).It is noted that in cases where the Court is not satisfied that a non-solicitation clause meets the aforementioned requirements, it refuses to uphold the clause as, generally, any contractual term restricting an employee’s activities post-termination of his/her employment is considered to be void for being in restraint of trade and contrary to public policy (Gledhow Autoparts v Delaney).

What kind of proprietary interests are capable of being protected by the incorporation of non-solicitation clauses in employment contracts?

The legitimate proprietary interests that can be protected by the incorporation of non-solicitation clauses in employment contracts are mainly customer and trade connections. Client and trade connections actually refer to connections developed between the employee and the trading partners/customers of the employer. Is it noted that in certain cases, “client connections” may also includes potential clients (East England Schools CIC v Palmer and another). Any reference to “client connections” is actually a reference to the personal knowledge and/or power of influence and control an employee may have over the customers of the employer, to such a degree that enables him/her to take advantage of that connection in order to solicit or canvass the business or custom of his/her employer’s clients (East England Schools CIC v Palmer and another; GW Plowman & Son Ltdv Ash).Undoubtedly, in cases where an employee has dealt directly with certain clients for a period of time, he/she has knowledge and influence over the said clients. The clients develop a relationship of trust with the particular employee who, as a result, may exercise the control and influence he/she has gained over the said clients, who rely upon the employee to meet their needs, rather than on the employer’s company (East England Schools CIC v Palmer and another; GW Plowman& Son Ltd v Ash).In most of the cases, the aforementioned relationship built up between the employee and the employer’s clients was developed by the use of the resources of the employer (e.g. marketing budget).

When is a non-solicitation clause considered as being reasonable by the Courts?

Once the employer proves that he/she has indeed a legitimate proprietary interest that needs to be protected against the employee, namely his/her client connections, the employer also needs to demonstrate that the non-solicitation clause is reasonable. As already mentioned, a non-solicitation clause will only be considered as reasonable by the Court if it is proved by the employer that the clause is no wider than what is reasonably necessary for the purpose of protecting the employer’s client connections. In considering the reasonableness of the of a non-solicitation clause the Court may also take into consideration whether or not a covenant of a narrower ambit would have sufficed for the purpose of protecting the employer’s interests. In Office Angels Ltd v Rainer-Thomas and O’Connor, it was stated that a restrictive clause in one form cannot be considered to afford no more than adequate protection of the employer’s relevant legitimate interest if the evidence shows that a restrictive clause in another form, much less far-reaching and less prejudicial to the employee, would have afforded adequate protection.

Other factors that play some role in determination by the Court as to whether or not a restrictive clause is reasonable are the role, duties and responsibilities the employee had in employer’s business. Generally, the more junior the employee, the harder it may be for a restraint, namely a non-solicitation clause, to be upheld by the Court as reasonable. On the other hand, the more senior the employee and the more responsibilities he/she had, the more willing the Court is to uphold a restrictive clause as being reasonable, always taking into consideration the facts of each individual case. In Safety Net Security Ltd v Coppage, it was held that a non-solicitation clause restricting the employee from soliciting and/or canvassing, directly or indirectly, business or custom from clients of the employer for a period of six months, post-termination of his employment was considered as reasonable and was upheld by the Court as the employee had played a large role in the employer’s business as its “outward face” and he had contact with all of the employer’s clients as he had undertaken the role of director. It was stated that the employee had realistically had the power to influence all the clients with whom he had communication during his employment.

What constitutes “solicitation” of clients?

It is noted at this point that solicitation needs something more than simply informing a client of the employee’s departure. There must be an aim and an intention to acquire orders from the client and frequently requires the employee to initiate contact and communication with the client for that purpose (Baldwins (Ashby) Ltd v Maidstone).

How interpretation and construction of non-solicitation clauses affect their validity and enforceability?

The construction and interpretation of non-solicitation clauses play significant role in whether or not these will be upheld by the Court as enforceable. It must be noted that in cases where non-solicitation clauses/restrictive covenants are too wide, the Court will not be willing to interpret them in a more narrow way in order to render them valid and enforceable and will rather treat them as void and/or unenforceable (East England Schools CIC v Palmer and another).

Moreover, where a contract contains several restrictive clauses, these are treated by the Court as being severable. For instance, if a non-competition clause contained in a contract is considered as being too wide but a non-solicitation clause contained in the same contract is considered by the Court as reasonable, the Court will uphold the reasonable clause and render the other clause unenforceable.

According to the Court, the below mentioned criteria apply in order to assess whether a clause or some of the wording contained in a clause can be severed from the rest of the contract (also known as the “blue pencil” test (Tillman v Egon Zehnder Limited; East England Schools CIC v Palmer and another):

  • The unenforceable wording can be removed without having to add to or modify the remaining words;
  • The remaining clauses/restrictive covenants must be supported by adequate consideration;
  • The removal of the unenforceable wording and/or provisions must not generate any major change in the overall effect of the restrictive covenants in the contract of employment.

 Author:Eleni Louka

 

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