Solicitation

By on Sep 30, 2011

 
The article below, regarding solicitation addresses an area relevant to employers and employees alike. This is because employers often ask employees to sign non-solicitation clauses, sometimes called restrictive covenants and employees agree to them, usually when starting a new job. What do these clauses mean for employees? How effective are they for employers? This document provides general information about solicitation. It is not to be relied on as legal advice and you should consult a lawyer for advice related to your own specific circumstances.
 

What is solicitation?

 
The Concise Oxford Dictionary of Current English, 5th Edition defines “contact” as touching, get in touch with. “Solicit” is to invite, make appeals or requests to, importune, entice, ask earnestly for. Further definitions of solicit include to seek assiduously, ask consistently, plead for and so on. It is generally accepted in law that solicitation of customers by a former employee requires the overt and active participation in contacting customers for the purpose of gaining their business in favour of the customer continuing to business with the former employer, but, what does that mean and when is indirect conduct enough? Breach of an obligation not to solicit can result in significant liability to the employer and to the new employer.
 

What type of activity is not considered to be solicitation?

 
Sometimes an employee who has left a business will want to contact former clients or customers of their former employer to let customers know that he or she has left the business and has gone to another employer or opened his or her own business. Would this amount to solicitation? Does it matter whether, as a result of the contact, a customer decides to transfer their business to the new employee or employer as the case may be.
 

Is contacting former customers acceptable?

 
This issue was addressed in a case involving an independent insurance adjuster who had left his the company he was providing services to. He notified, as a courtesy, companies for whom he had acted that he was leaving the company and opening his  own office. A customer who left the company to go to the adjuster’s new company gave evidence that the adjuster had not solicited his business. The judge in that case found that the adjuster did not solicit clients and was therefore not in breach of his agreement not to solicit.
 

Is it acceptable to send letters to customers using the former employer’s client list?

 
A sales representative for a company that marketed mutual fund investments sent a letter to his former clients to let them know he was leaving the company and could be contacted at home should there be any problems. The letter was sent using the employer’s customer list and mailed before the sales representative stopped working for the company. If former clients asked the sales representative for advice regarding the products of the new company, the sales representative had been instructed by the new company to get a letter from the client indicating that the client had requested the information.

The judge in that case found that although the letters were sent in the hope and expectation that the customers would follow the sales representative to the new company the judge stated that the letters to the former clients did not constitute soliciting. It was noted that an incentive was offered to customers who did decide to transfer business to the new company. This, according to the judge was close to the line, but, not enough to cross it.
 

Is there anything the new employer can do to reduce their risk of liability for solicitation by their new employees?

 
The new employer can be found liable if a new employee solicits customers of his or her former employer. In one case, where the employer was aware that the Sales Representative had signed a non solicitation clause that had a 2 year time frame with his former employer, the new employer gave specific instructions to the sales representative not to compete. This seemed to have been an important factor in the decision of the court not to find liability by the new employer for solicitation. In the event that a new employee does begin soliciting customers from his or her former employer, this type of instruction would likely assist in protecting the new employer from liability.
 

Is it acceptable to do general advertising of employee transfers?

 
In one case, a new employer of three investors placed an advertisement in The Gazette announcing the opening of its first Quebec branch in Montreal. The ad included photographs of three new employees all from another financial services company. The ad stated that the investors had all held management positions with another financial services company, but, did not mention the name of the company. Of note in the case involving the investors is that the investors all had signed an agreement not to solicit with their former employer. When the investors were contacted by clients of the former employer, the investors informed the clients that they were contractually prohibited from soliciting their business, but, that the client was free to choose what he or she did with his or her money. If a client indicated that he or she wished to transfer his or her investments, the investors would then initiate the process to transfer the investments to the new employer.
 

What type of activity is not considered acceptable?

 
In some circumstances, though rarely, there may be an obligation by an employee to decline indirectly solicited business from customers of a former employer. Employees who are likely to be held to that standard are employees who had a fiduciary duty to the former employer. Examples of employees with fiduciary duties include officers, directors or partners in the business. For example, in one case involving the sale of a family business a brother who opened the new business was found to have an obligation not to accept an offer to bid on a contract with a former customer of the family business. In that case, Brother A had sold his shares to Brother B. Brother A at the same time started a new business in direct competition with the family business and hired away a key employee to work in the new business. The key employee and Brother A were found to be fiduciary employees in the family business and were expected to not only not solicit, but, to decline work from customers of the former employer.
 

Does it make a difference if advertising is in small local papers as compared to major new papers?

 
In the case involving the two brothers above the new business had engaged in generalized solicitation for business in the small community where both the business of the former employer and the new business were located. As a result of the generalized solicitation in the small local paper, former customers of the family business began contacting the new business for quotations on orders. Brother A and the key employee were found to have breached their fiduciary duty. Although Brother A and the key employee were not found to have directly requested that the customers ask them for quotes or come to do business with them, the judge found that they were prohibited from quoting on projects in response to contact by a former customer known to them only because of their work in the family business. It may also have made a difference that the new business advertised for customers in the small local paper.
 

Are Fiduciary employees more limited in what they can do to attract customers?

 
When the nature of employment gives rise to fiduciary obligations, even if there is no nonsolicitation or non-compete agreement, the employee is expected not to “unfairly” solicit the customers or clients of the former employer. For example, unfairness will be found where there is active, direct, aggressive solicitation of the former employer’s customers or clients that is initiated by the employee. Recall that the new employer may also be liable for the employee’s conduct.

The article posted here is for general information. We hope you find it useful. For advice specific to your circumstances you should consult a lawyer. We would be pleased to speak with you if you have questions about our services or need the assistance of a lawyer.