Taking clients from a past employer

Date: 2007
Author: Daniel A. Lublin
Publication: Metro

Law protects employers against departing employees

Thinking of jumping ship to the competition? You better think twice before taking your clients with you.
Nothing infuriates a company more than news of an ex-employee soliciting away its most prized assets: the clients. But clients, much like those employees, are not sedentary. Seldom are they attracted to one company or another exclusively by virtue of the services they are offered. Rather, their affiliation lies with the relationships that are built and the key employees who have built them.
Courts recognize that business relationships follow the employees who possess them and permit employers to protect their most valuable assets through contractual and equitable limits. In today’s employment contract, it is commonplace to find any combination of non-solicitation, non-competition and confidentiality clauses restricting your ability to work for the competition or solicit your book of business on the way out the door.
But not all post-employment behaviour amounts to infidelity. Here are five legal points to remember, to keep you both in business and out of the courtroom:

  1. Ordinary ex-employees are entitled to market their services to their former clients but must do so within the confines of their contractual limits. In a previous column, I wrote about Alberta investment dealer Ed Darling* who was ordered to pay his former firm, Edward Jones, nearly $20,000 for removing his customer list and thousands of pages of client information, in violation of a clear contractual clause forbidding those very actions. When drafted appropriately, an employer’s best defence to the departing employee is a clear contractual proviso, spelling out exactly what he cannot do and a reasonable time period during which he cannot do it.
  2. However, just as courts recognize an employer’s right to protect itself against departing employees, those same employees must also be allowed to continue their careers. When Ontario corporation TAL Global Asset Management learned that former fund manager Virginia Wai-Ping was working for the competition, it relied on the contract she had signed in arguing that she agreed not to work anywhere in the world in competition with its services. But an Ontario judge disagreed. For a court to uphold these post-employment restrictions, they have to be drafted clearly, pertain to a reasonable geographic location and last for a reasonable period of time after having left the job. For this reason, Canadian employment law is replete with examples of employers unsuccessfully arguing that post-employment limitations impede the activities of their former employees.
  3. Even without a contract in place, employees may be prevented from soliciting their former clients or acting against their former employers. All employees have an unwritten duty of good faith and fidelity. This duty prohibits taking confidential information to use in competition against a former employer, and will continue to exist for as long as that information remains confidential.
  4. Employees who had considerable control and responsibility may be viewed as fiduciaries. Fiduciaries are under a very strict obligation to act only in the best interests of the company and not to compete unfairly, long after leaving.
  5. Resigning employees must provide reasonable notice of their resignation or face being sued for damages. When a large group of employees working at RBC Dominion Securities in Cranbrook, B.C., suddenly departed en masse to competing firm, Merrill Lynch, they took their client lists and financial records, and immediately began soliciting away business. RBC was unsuccessful in arguing that they had competed unfairly but was able to recover a modicum of its damages because the brokers had resigned without advance notice.

The law does favour an employee’s right to compete, even against a former employer. However, there is more to switching jobs than merely providing two weeks’ notice.
[* Name has been changed for this publication.]