In the case of Towry EJ v Bennett, Raymond James Investment Services and others , The High Court ruled that ex-employees had not solicited customers from their previous employers.
The defendants were financial advisers and stockbrokers that had resigned or been made redundant after a company takeover. They had subsequently joined Raymond James Investment Services Ltd. The claimant, Towry EJ Ltd, then received a large number of requests from clients, whose financial adviser had been one of the defendants, to transfer their business to Raymond James.
The claimant bought proceedings alleging that the defendants persuaded many of their former clients to transfer their investments, with the backing of Raymond James.
The defendants had a non-solicitation clause in their contracts that would not allow them to solicit or canvass clients in competition with the claimant and not to misuse the claimant’s confidential information.
The defendants denied any wrong doing arguing that they had complied with their legal obligations, they were long standing financial advisers to their clients and many of them were in fact friends. The clients who transferred their business did so freely without persuasion or breach of confidentiality.
The High Court dismissed the claimant’s case. For the non-solicitation clause to have been breached the ex-employee must directly or indirectly encourage the client to transfer their business. The claimant was unable to prove that the ex-employees had encouraged or persuaded their clients to move their investments.
An alternative to a non-solicitation clause is a non-dealing clause which prevents an ex-employee from dealing with their former clients at all. A non-dealing covenant can be much easier to enforce as there is no need to prove an element of persuasion.