NSW Solicitation of clients from ex employer

[Chriszx6]

Hello,
I worked with my ex employer for 12 years as an insurance broker. I ceased employment with them approximately 27 months ago. In my employment contract it stated that i could not solicit their clients for 3 years/36 months.
I have recently started my own insurance brokerage and i am wondering if this would be upheld in court? As i believe that 3 years is far too long.
Thank you

 

[Rob Legat - SBPL]

It would depend on a number of factors, but three years is about the maximum enforceable period. It doesn't mean that they'll get that, however. Relevant factors can be: your seniority with the previous employer, your degree of connection to the client(s), whether you targeted the client or they came to you, the size of the market in your area, and most importantly the wording of the employment contract.

 

[Chriszx6]

Thanks Rob.

The contract states the following:

18. No Competition

18.1. The Employee must not, during the Employment and after the Employment ends, as principal employee, consultant, agent or director directly or indirectly, induce or attempt to induce any customer of the Employer to contract with the Employee or any third person or agent of the Employee in the following circumstances:

18.1.1. For a period of not less than 36 months from the date the customer last entered into a contract with the Employee as the representative of the Employer, or with the Employ

means and the first payment on the transaction is received by Investment & Insurance Solutions Proprietary Limited.

18.1.2. For a period of 36 months after the date of termination with the Employer.

18.1.3. Accept work, similar to that performed by the Employee, from any customer of the Employer for a period of 36 months from the date of termination;

18.1.4. Induce or attempt to induce any person to leave the employment of the Employer for a period of 36 months from the date of the termination.

18.2. In this clause, customer means a person who is, or was within the thirty six (36) months immediately before the Employment ended, a customer of the Employer.

18.3. The employee acknowledges that a restraint period of 36 months is reasonable given the “clawback” rights that attach to contracts with clients. In the event that any customer contracts with the employee as outlined above, the employee will pay to the Employer any commission recovered by a client under their clawback schemes.

18.4. The Employee must not at any time after the date of termination of employment present himself or allow himself to be presented as being in any way connected with or interested in the business of COMPANY ABC.


Now, the business I worked for was actually sold to another party. I was offered a job with the new owner (also 27 months ago), I initially signed the employment contract and later declined the offer 2 weeks before commencing employment. The contract I signed with the new employer contained the same 'No Competition' clause as above. This company recently changed it's name as well - possibly a new entity altogether.

I was on about 90K per year. There was only 3 people working in the office and all were client facing. I guess I you could say I was the most senior employee (given the small office) Some clients have approached me and I intend on approaching some of my clients that I had stronger connections with. The market in my area would be large - Sydney Australia.

In your opinion only, what would be the maximum enforceable restraint period for me? Or would the contract be void given that the company I signed the contract with no longer trades under that name/ entity?

 

[Rod]

I am thinking you need a lawyer to answer your question.

Clawback rights with clients are not a typical employment matter and relate to your remuneration. For instance, whether commissions are still payable to you following termination of employment is a factor to be considered. There may well be other issues at play and I don't have enough experience to comment on you chances of success.

3 years is certainly at the extreme end of a restraint period.

Then you have the complication of your employer selling their business to another company and the way in which the sale was conducted can impact on whether the new owner acquired rights under the old employment contracts. One possibility is the new owner can force the old owners to enforce their employment contract conditions. Someone may need to read/understand how the sale was performed, and I doubt the new owners will willingly provide the information you request.

If your tolerance for risk is high, you could just start up and see what happens.

If your tolerance for risk is low, either seek legal advice, or wait another 9 months.

 

[Rob Legat - SBPL]

With restraint clauses, the courts don't 'write down' restraint periods: they 'cross out' unenforceable ones. That's why a lot of restraint clauses have a list of time limits - so that when an objectionable limit is crossed out there's another time limit available. In your case, if the court finds 36 months is too long they'll 'rule a line through it', which leaves no time frame (and no restraint). That's assuming 36 months is considered reasonable. The 'clawback' issue may have some relevancy to that.

Re the sale of the business, it would depend on the manner in which the sale took place. However, it would likely make it unenforceable against you.

Overall, I wouldn't be confident in trying to enforce that restraint clause against you in a court.