Encouraging New Employees to Bring Clients With Them Can Be Risky

Encouraging New Employees to Bring Clients With Them Can Be Risky

Encouraging employees recruited from competitors to bring their clients with them may not be inherently wrong, but it is often legally hazardous. A Court of Appeal ruling in the context of the travel agency business served to highlight the pitfalls.

A travel agency which used a franchise model to employ over 700 sales consultants took action after a substantial number of them left to join a competitor. For reasons of economy, the agency proceeded against two of the franchisees on a sample basis. After a trial, a judge found that, in taking client information belonging to the agency with them and disclosing it to the competitor, the pair had breached their employment contracts and the obligations of confidence they owed to the agency. The franchisees did not appeal against those findings.

In also ruling that the competitor had breached the agency’s confidence, the judge noted that it did not provide new franchisees with clients, but expected them to bring their own. It provided a brochure to potential recruits which positively encouraged them to bring their customer contact lists with them. They were not warned about any risk of breach of confidence in doing so.

The judge found that a reasonable person in the position of the competitor’s senior management team would have been aware that at least part of the customer contact information brought to it by the franchisees was likely to have been copied from the agency’s customer data. They knew or ought to have known that the agency reasonably regarded such information as confidential.

The competitor received the information, which was too extensive for the franchisees to have carried in their heads, subject to an obligation of confidence, and the judge found that it was in breach of that obligation because it used the information for the benefit of its business.

In dismissing the competitor’s appeal against those findings, the Court noted that there was no challenge to the judge’s conclusion that some of the information imparted to it by the franchisees was confidential to the agency. The judge was entitled to conclude that the information was communicated in circumstances which imported an obligation of confidentiality on the competitor. Remaining issues in the case would be considered at a further hearing, if not agreed.

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