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, do not stay 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.
In permitting business relationships to follow the employees who possess them, courts have generally condoned open competition by ex-employees as long as the means are not manifestly unfair. But this is not so where an employment contract prevents such behaviour.
Having made the decision to jump to a competing insurance firm, broker Frederick Moroz thought he could solicit his old clients to join him. But his old insurance brokerage, Wilson M. Beck Insurance Services Inc, felt otherwise. After being contacted by a number of its customers wishing to transfer their business to Moroz’s new employer, Beck applied for an interim court order – seeking to restrain Moroz from soliciting its customers and forcing him to hand over any company materials that he might have taken with him.
The evidence of Moroz taking Beck’s documents was scant, according to the B.C. judge who recently heard the case. But the evidence of Moroz’s solicitation of Beck’s customers was much stronger: Moroz admitting to contacting about 20% of the surety clients that he serviced while employed by Wilson Beck.
Although Moroz argued that he hadn’t actively solicited the customers and that his employment contract didn’t apply to the type of work he sought, the court was unconvinced. While a client is entitled to decide with whom it will conduct its business, an employee who is subject to a non-solicitation clause in his contract must not actively pursue that work. Finding that Moroz was not at liberty to “act in an unfair way,” the court ordered him to not solicit or entice any of his old clients to join him.
However, on April 2, 2008, the BC court of Appeal ruled that Mr. Moroz is not prohibited or restricted in any way whatsoever from soliciting customers of the Defendant, Wilson M. Beck Insurance Services Inc., as the matter is scheduled for an appeal.*
This case demonstrates how far Canadian courts may go to prevent what is perceived to be unfair competition. Upon departing, employees should first pause for the following reasons:
- Contractual provisions limiting solicitation and or competition are commonplace in today’s employment contract – and they are increasingly being enforced.
- In addition to contractual obligations, all employees have implied duties of good faith and fidelity towards their employers, which prohibit taking confidential client information to use in competition against a former employer.
- Employees entrusted with control over the business or even key aspects of it may be viewed as fiduciaries who are required to act in the company’s best interest long after their departure.
* This information was absent from an earlier version of this article. The author and metronews.ca regret the error.