Risks of Taking Clients from a Previous Employerteam
Clients are the most valuable asset for most businesses. Without clients, you do not have profits. Without profits, there is a real risk that the business can no longer continue to exist. There is a demand to retain clients and maintain a steady flow of revenue to keep the business alive.
Many employees for a business have access to important information regarding these clients – their phone numbers, addresses, and other contact information. When an employee leaves, they take that knowledge with them. If that former employee wanted to, they could use that information to steal a client away from the business. This is also known as the “solicitation” of a client.
As an employee, you may be wondering whether it is illegal for you to steal or “solicit” clients from a previous employer and what the consequences may be if you do so. The article below will answer those questions, and outline how an employment lawyer can help you navigate the situation.
What is Solicitation, and When is it Illegal?
In Ontario, “solicitation” in the context of employment law occurs when an ex-employee intentionally “persuades” previous clients, suppliers, vendors, other employees, or other affiliates of their former employer to work with them and/or their new employer instead.
Whether an employee is soliciting or not is a fact-specific analysis, but the ordinary definition applies to any given situation. A former employer has to prove their former employee expressly communicated with a client to solicit them or otherwise took steps to solicit the client indirectly. It is generally not solicitation if a client of the former employer leaves with them of their own volition.
During the course of employment, solicitation is generally a breach of an employee’s implied duties owed to their employer as a part of the employment relationship. However, whether it is legal for an employee to take clients from a previous employer after the end of the employment relationship will depend on the unique circumstances.
If there is an enforceable and reasonable “non-solicitation” agreement or written contractual term restricting the employee from soliciting from their employer even after the end of employment, then the employer can sue the employee to hold them accountable. Non-solicitation agreements and provisions prohibiting a former employee from soliciting their former employer’s clients 6 to 12 months in length and covering a localized geographic area are typically enforceable.
Less commonly, if an employee owes their employer a “fiduciary duty”, they may have an implied obligation to avoid soliciting their former employer’s clients after the end of the employment relationship. It is typically employees who have access to significant information relating to their employer’s business and are involved in strategic decision-making that are determined to be fiduciaries. Common examples include directors, senior management, and executive officers.
Employees held to be fiduciaries are typically obligated to refrain from either soliciting their former employer’s clients or otherwise competing with their employer for a reasonable timeframe and within a specific geographic area. This is usually determined by a Court but can prohibit a high-level employee from soliciting their former employer’s clients for up to 2 years.
What Are the Legal Consequences of Taking Clients from a Former Employer?
If an employee solicits their employer’s clients or competes with their employer while employed, the employer may have grounds to terminate their employment immediately with cause, deny them severance entitlements, and potentially have a case for damages against the employee.
If an employee subject to a non-solicitation agreement or a fiduciary employee solicits their former employer’s clients, the employer can commonly sue for:
- Breach of contract;
- Breach of fiduciary duty;
- Breach of confidence; and
- Inducing breach of contract.
An employer can seek the following against a former who solicits their clients unlawfully:
- Lost revenues and profits;
- Provable damages for non-tangible harm, such as loss of reputation;
- Punitive damages to punish the employee and deter similar conduct from other employees;
- Injunctions to prevent them from further solicitation of clients;
- The some, most, or potentially all a former employer’s legal costs; and
- Other orders a Court may deem appropriate to address the harm a former employer suffers.
Depending on the context, an employee may also be subject to criminal liability for instances of fraud or criminal activity in connection with their solicitation of a former employer’s clients.
Taking a former employer’s clients are illegal insofar as their former employer can sue them when:
- There is a non-solicitation agreement or provision prohibiting them from soliciting after the end of an employment relationship; or
- The employee in question was a fiduciary of their employer.
An employee who steals or unlawfully solicits clients from their former employer may be on the hook for significant legal liability, damages, and their former employer’s legal costs.
Whether you are an employer or an employee, a consultation with an employment lawyer for tailored legal advice can be the difference between winning or losing in a solicitation or other employment-related lawsuit. Both employers and employees can benefit from an employment lawyer’s assistance with:
- Understanding their legal rights, obligations, and what proactive actions they can take to minimize their legal risks while maximizing their entitlements;
- Negotiating a resolution in a potential solicitation scenario; and
- Navigating the legal process to achieve their respective desired results.
If you are an employer or an employee needing assistance with understanding your rights and obligations regarding non-solicitation, or any stage of a workplace dispute, our team of experienced workplace lawyers at Achkar Law can help. Contact us by phone toll-free at 1 (800) 771-7882 or email us at [email protected], and we will be happy to assist.
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