Blog / Leadership
Watch out someone's ready to steal your business, Greg Paterson
One of the more common problems faced by real estate agents is what can be done to protect the commercial goodwill built up in the agency from exploitation by former employees.
The employment contract or agreement is the main instrument by which an employer can protect their business from ex-employees. This means that at the commencement of employment, employers must think carefully about what risks each employee may pose to their business and what steps must be taken to minimise these risks. Agencies that do not have valid restraint and confidentiality provisions in their employment contracts will find that they have few, if any, rights to prevent an employee from poaching their clients or business.
Subject to a more general restraint being imposed on the ex-employee via the employment contract, once the employment has ended the ex-employee is free to poach clients of the employer and also compete with the employer’s business provided that in doing so the ex-employee does not breach his/her duties of confidentiality to the employer.
Of course, this raises the inevitable question of what is “confidential information”? Generally it is regarded as information of the employer that the employee is not free to use or disclose except as authorised by the employer. Distinguishing between confidential information and the know-how and skill of an employee is not always an easy exercise. The prudent employer should specify in an employment agreement what information they consider to be confidential. Confidentiality clauses should also make clear that the confidentiality obligations survive after the employment ends.
If an employer wishes to impose a more general restraint on the ability of an exemployee to ‘trade’, the employer must do so by agreement. The usual type of restrictions which are sought to be imposed include:
- Limiting the employee from conducting certain work in a particular geographical area or for a specified period of time or a combination of both; and/or
- Limiting the employee from poaching clients and/or accepting an appointment from an existing client of the business (e.g. a landlord).
However such agreements are only enforceable to a limited degree. The Courts will generally only endorse a post-employment restraint if it can be established that it is confined to reasonably protecting the legitimate business interests of the employer and it is not unduly harmful to the interests of the employee and the public. Each situation will have to be assessed on its own particular set of facts and circumstances. Notwithstanding, employers who do not insert restraint provisions into their contracts of employment will find they have no real opportunity to challenge the post-employment conduct of a former employee. REEF is certainly aware of cases where the employer has successfully sought to restrain an ex-employee from working for an immediate competitor for a specified period of time or from approaching existing clients of the employer. This may include the ex-employee providing undertakings in Court orders not to do certain things (such as approach clients of the business) for an agreed period of time.
The issue of post-employment restraints is both complex and problematic. It is therefore important that any agency or individual seeking to enforce/defend a restraint in an employment contract, obtains appropriate legal advice on the way forward including the costs and consequences of commencing or defending any legal action.
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