Most restraint of trade clauses aren’t worth the paper they’re written on, but every now and then the courts support businesses who’ve worked hard to build a client base. In the NSW Supreme Court recently, a financial planner was made to pay $56,000 in damages (costs to be settled on top) as a result of poaching clients from his former employer.
The planner had violated his three month restraint of trade clause. He used paper and electronic lists of his former employer’s clients to contact and then perform work for them. This was done on behalf of his new employer, a company of which he was also a director and shareholder. In other words, he used his old boss’ hard work to help establish his own business in direct competition.
The court made the point that even though the planner was not very senior in his former employer’s business, he was ‘the face’ of the business in a sector where personal relationships and trust played an important role. In that regard also, the court said the three months period of the restraint was “a reasonable restriction”.
This whole issue is fraught and businesses are reluctant to pursue former employees in court because of the costs, however this case demonstrates that even relatively junior staff have a fair bit to lose if they do ignore the restraint clauses they agree to when being hired. The courts will support reasonable restraints and the courts do have the power (and use it) to award costs.