Published by Flie Family on July 15, 2020

When one of your employees / contractors is terminated or leaves, are you concerned they will poach your customers? This is commonly known as solicitation and unfortunately we are having more conversations with our clients in this area.

If you run a business you have put it all on the line, have taken all the risks, and have sacrificed personal time or family time – all in a dream to make something happen for you or you family!  So, for an individual to somehow think its “OK” to poach clients based on relationships you paid them to build for your business is more than slightly offensive. 

OK, stuff happens! Let’s talk about those things we would explore when this hits your radar.

Essentially, you will want to know your options: how you can stop an employee who is leaving from soliciting your customers or how you can stop it happening again in the future.

The answer is: it depends… it depends on the contract you have with them, the circumstances and the potential impact to your business.

As someone who spends a lot of time drafting / reviewing documents, the contract is important, but it’s only part of the solution.

Here are 3 practical guidelines you can use to help avoiding losing customers to an ex-employee / ex-contractor

Own Your Customer Relationships

As a small business owner, it’s tough to do everything yourself – there is not enough time in the day.  And the smart thing is to delegate.  My guidance is to delegate your book-keeping, delegate your cleaning, delegate, delegate, delegate – but don’t delegate your customer engagement.  Your customers are your life blood – they pay your bills, give you ideas, refer other clients, provide you with marketing, and ultimately help make your business better.  If you delegate the full customer relationship then you need to think about how will the customer interpret that?  Will they see your business / brand?  Or will they see that individual as the business?  The stronger your ongoing relationship with your customers (particularly your key customers), the less likely an employee / contractor could ever stand between you and your customers.

Engage with your Employees

Assessing potential candidates as part of the hiring process can be difficult – and the hiring process is worthy of a separate discussion.  

In my experience, you never truly know whether a candidate will work out until they join and work for you for several months.  In past lives I have hired what looked like the best candidate on paper but when they joined, I was very disappointed – in a matter of weeks.  On other occasions, I took a risk based on gut feeling and they turned out to be one of those rare gems that you wish you could replicate 10 times over.  And again, you know that in a matter of weeks.  

So, once you have hired someone – particularly in sales, account management or customer facing, then please, please, please assess them quickly to ensure they are a good fit.  Engage with them daily/weekly to understand what they are working on, who they are meeting, how you can help them, etc, etc.  If there are any red flags (for example, they are asking you not to attend certain meetings or are unwilling to share any meeting information at all) then act quickly – provide constructive, positive feedback and let them re-set.  If they still don’t come up to scratch, again – trust yourself and act quickly – this is one good reason to have a probation period in your employment contract and be prepared to use it! 

As they say – hire slow, fire fast…

Utilise your Contract

There are many different ways to cover yourself in the contract and a good lawyer will be able to help you draft suitable clauses to help protect yourself.  But before you do think about how you want to use your contract:

(a) Will you need to rely on the Contract?

If someone was to take a customer will it result in a member worth $2k per year leaving your membership base?  Or could it result in 20% of your revenue base drying up overnight? 

The higher the impact the more likely you will need to rely on the contract – either to demand the person to comply with it or to rely on it in court.  In this case spend the money now so that you are confident it will be enforceable – and it’s obvious to the employee and, more importantly, their legal adviser that you will enforce it and win! You will get a quicker and less expensive result if your probability of success is much higher than theirs.

(b) Do you want to send a clear message with a separate contract?

It is common to have a separate contract to cover confidentiality, intellectual property and the solicitation of customers and other employees.  So, if you want to set the tone with your potential employee / contractor it’s a good idea to use this technique, even if you don’t think you will ever take it to court. 

A separate contract gives you the opportunity to walk through it separately with them and make sure they understand and agree to it. Importantly, it gives you an opportunity to explain how important these clauses are to you and that you take them seriously and have and will enforce them without hesitation. Also, if you were to rely on the contract then it is always good to have given them the opportunity to ask questions, negotiate and seek their own independent legal advice.  All of this will make it difficult for them to argue they didn’t understand, it was unreasonable, etc.

(c) Be firm but fair

If an ex-employee ever considers engaging with one of your clients directly and contrary to the contract, then quickly and unemotionally defend your rights under the contract.  This is an issue you need to be consistent and firm about – to not only protect your business but also to make it clear to all of your other employees / contractors that as a business owner you are prepared to take clear and firm action to protect the business you are building.

It can be a very difficult legal area and it can be daunting to discuss the issue with each person, particularly an individual who is attempting to rationalize that it’s OK to take one of your clients.  But never forget: this is your business, you are taking the risks, making the sacrifices and driving this forward. 

By following these three principles: owning the customer relationship, engaging with your employees and contracting wisely you will be in a far better position to keep your customers working with you (not an ex-employee).

Back yourself.

Flie Legal

The contents of this blog do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. You should seek legal advice or other professional advice in relation to any particular matters you or your organisation may have.