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Poaching and solicitation of clients by ex-employees

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          Solicitation of clientele concerns both employers and employees alike but for rather different reasons. Employers would be concerned with the potential loss of clients which would affect their business or trade. In contrast, former employees are concerned with whether it is illegal and, if so, why. This article seeks to provide an overview on poaching and solicitation of clients with recent Malaysian case law to illustrate the court’s take on dispute on the subject.

          Section 28 of the Contracts Act 1950 prohibits any agreement which restrains a person from exercising a lawful profession, trade, or business of any kind. This encourages movement of trade. However, this does not envisage poaching and solicitating clientele from a previous employer, company or firm. A former employee can be prohibited from poaching or solicitating clients from his or her previous employer similar to how restraint can be imposed on a former employee against the disclosure or use of confidential information obtained in the course of employment.

 

          In the workforce of today it is common for employees to change employers by switching from one company or firm to another. Further, the rate of which can be significantly higher in some industries. As a result, it is increasingly common for companies and firms to implement a non-solicitation agreement with their employees. Non-solicitating agreements can also be included into an employment contract as a non-solicitating clause. This serves as a form of protection of the company’s trade secrets and information of their clients that is essential to their trade, and ensuring loyalty of their existing clientele.

 

          A non-solicitating agreement would be enforceable even after the termination of an employment. The major concern of companies and firms alike is the potential loss of clients to the former employee who acquired their clients through poaching and solicitation. This can occur where a former employee is now an employee of a competing company or firm, or a former employee who has established his own company or firm in the same trade or industry becoming a direct competition.

 

          Where a non-solicitating agreement or a non-solicitating clause in an employment contract exists, breach of such could occur. The company or firm can bring a legal suit against a previous employee who has breached the non-solicitating agreement. Employers have brought legal suits of this nature in Malaysia.

In the 2021 case of Ace Capital Growth Sdn Bhd v Kua Kee Koon & Ors is one such case, the breakdown of the case is as follows: –

 

• the plaintiff company brought a suit against a former employee and director for the attempt of solicitation of its customers.

• the plaintiff produced the relevant letter of employment for the court which contains a section specific to “Restraint of Trade Clauses” which states “the employee must not canvas, or solicit the business of, or maintain any personal records of any client of Ace Global Metal Sdn Bhd and Ace Capital Growth Sdn Bhd.”

• the court held that where non-solicitation has been expressly prohibited in a contract it survives even after the employment ceases and decided this suit in the plaintiff’s favour.

 

Another example of Malaysian courts’ recognition of non-solicitation agreements can be seen in Agensi Pekerjaan Talent2 International Sdn Bhd v Kenneth Yong Fu Loong & Anor. In this case the non-solicitation clause reads:

 

“directly or indirectly approach, induce, solicit or persuade or attempt to approach, induce, solicit or persuade any person or entity who or which was or is a client of Talent2 within the last 12 months of your employment with Talent2 to undertake or perform work or services for that person or entity or to cease doing business with Talent2 or reduce the amount of business which the person or entity would normally do with Talent2.”

 

The court recognised that clause to be a non-solicitation clause. The issue that was deliberated was whether to allow the application of injunction. To which the court, recognising the significance of a non-solicitation clause, allowed the injunction application.

 

          To summarise, non-solicitation can be included as a clause in an employment contract. It is common for companies and firms to express the prohibition of solicitation of their clientele to be enforced throughout the duration of an employment contract and after its termination. Legal action can be brought against former employees for a breach of non-solicitation clauses or agreements and the courts in Malaysia would decide based on the material facts of each case. As can be seen in the abovementioned recent case law, the court would enforce non-solicitation clauses.

 

Disclaimer: The contents of this write-up is intended for general informational purposes only and
does not constitute legal advice.

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