Post Termination Restrictions: General Statement or Solicitation of Clients?

The Financial Services industry is no stranger to post termination restrictions or restrictive covenants. They are commonly used in order to protect business interests particularly when dealing with client facing roles such as independent financial advisers (IFAs) or insurance brokers.

A common restriction, and often one of the most valuable to most businesses will be the “non-solicitation of clients” provision. The purposes of such a restriction is to prevent the former employee from soliciting or poaching the customers or clients of the business for a period of time following termination, often 6 or 12 months. This can help limit the damage an individual leaving the business may do. This is particularly important for financial services where, given the nature of the services being provided, individual employees often build close relationships with their clients and there is often a strong relationship of trust.

A recent case (X-R Touring LLP v Javor and another) explored non-solicitation cases in more detail and in particular what may be considered an act of solicitation. Whilst it is not a case directly related to financial services, is relevant as arguments often develop over whether the action of a departing employee amount to solicitation and a breach of restrictions.

The Claimant, X-R Touring LLP are a concert booking agency and the former employer of Mr Javor. Mr Javor resigned from his role to work for a competitor. In his contract of employment Mr Javor was bound by a 12-month non-solicitation provision in respect of staff, clients and artists.

A day or so prior to Mr Javor’s employment ending with the Claimant his new employer made a press statement announcing his arrival. The following wording was used:

“Steve Strange and I built an incredible business at X-Ray over the last 18 years through teamwork and passion for our artists … I’m excited to start this next chapter at WME and to continue this legacy with the team in London and across the world.”

The Claimant sought to enforce the non-solicitation clauses against Mr Javor and in a recent Judgment, amongst other matters being dealt with, consideration was given as to whether the actions and steps taken by Mr Javor were indeed solicitation including his involvement in the statement above.

Case law has previously established the distinction between a general appeal for custom against a specific and direct appeal to customers of a previous employer.  The former is ordinarily unlikely to be considered to be an act of solicitation. In this case the Judge stipulated that there is potentially room for solicitation through the making of an appeal to the customers collectively, stating that “if the request is powerful enough, it could amount to an act of solicitation even if it is not expressed as such in so many words”.

This is a clear and stark reminder that the act of solicitation does not have to be a direct approach and indeed a former employee making an announcement on LinkedIn or other public forum could potentially amount to solicitation. Naturally, this would need assessing on a case by case basis. In the above example it was the wording of “to continue this legacy” which appears particularly powerful and a call to action for Mr Javor’s former clients.  The fact that the statement was made before Mr Javor’s employed had ended was also an important factor.

It is vitally important that businesses are adequately protected, and their restrictions are properly prepared. If you are operating without restrictions or have concerns in respect of a breach of restrictions do contact us to speak to a member of our Employment Team.