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Protecting clients from solicitation by former employees

The pendulum never seems to stop swinging in relation to the degree to which the law permits employers to restrict the activities of former employees. Just a few weeks ago, I reported on a rather stunning decision by B.C.’s Court of Appeal that certain professionals should be able to copy their employer’s client information for later use.
In that decision, the Court rejected the existence of an implied common law duty not to compete unfairly. The Court did, however, recognize that the law shields the employer’s goodwill and other property by providing protection against employees who take away confidential documents and trade secrets.
The Court then turned on its ear the traditional rule about the taking of client information for the purpose of establishing a competing business. The Court of Appeal expressed its belief that certain professionals (such as investment advisors) should be able to take lists of clients from the records of their employer for later use.
Swinging in the other direction is a recent decision of the B.C. Supreme Court. This decision involved an individual, Slozka, who began competing for clients with his former employer, C.B. Constantini Ltd.
Constantini is engaged in the business of trading agricultural commodities and feeding ingredients throughout North America. Slozka had been employed in a senior management position, responsible for a substantial portion of its sales and purchases. He was one of a select few employees given extensive access and privileges relating to Constantini’s proprietary software and confidential client information.
Constantini testified that Slozka was utilizing confidential client information in order to compete against his former employer. Constantini also took the position that Slozka was bound by a confidentiality agreement prohibiting precisely this type of conduct.
The confidentiality agreement had been implemented to protect Constantini’s financial, supply and service, marketing, customer, and computer information. It also contained blanket non-solicitation and non-competition clauses.
The Court ultimately issued two injunctions restricting Slozka’s activities in competition with his former employer. It prohibited him from doing business for 6 months with any of Constantini’s customers for which he had taken proprietary information. He was barred from soliciting those same customers for 12 months.
In convincing the Court to issue these remedies, Constantini relied heavily on its assertion that Slozka was using highly confidential information with which he had been entrusted while employed by Constantini. His solicitations made use of intimate knowledge of Constantini’s customers’ present and future needs and business.
The unique element of this case is that the Court appeared to rely on Slozka’s confidentiality obligations, rather than the non-solicitation and non-competition covenants, as the basis for the injunction. This demonstrates that powerful remedies can be obtained based on seemingly lesser restrictions.
It makes the case for the “less is more” approach to crafting post-employment restrictions. It has always been my strategy to encourage employers to rely on less restrictive measures (such as confidentiality and non-solicitation covenants) rather than the hammer of non-competition covenants.
Confidentiality and non-solicitation covenants are perceived by judges to be less intrusive in that they serve to protect the employer’s interests while not barring the individual from the market. They are more in keeping with the public policy of encouraging free mobility of labour.
The next time you are considering what sort of restrictions to impose on your employees, consider the confidentiality and non-solicitation forms of covenants. You’ll be imposing less onerous restrictions and, if you ever have to go to court to enforce them, you’re sure to get more receptive treatment from the judge.