LinkedIn to your goodwill: a de-facto client list for departing employees?

The days of an employee photocopying the client list or saving it onto a USB may be dwindling.  Employees are now "connected" to your customers and key contacts on social media.  Such connections occur as a matter of ordinary course with the approval of the business.  LinkedIn and other social media platforms provide a de-facto client list at an employee’s ready disposal.

Social media also provides an ex-employee a powerful marketing tool.  An ex-employee remains in front of clients more readily and with more immediacy than in the past.  An ex-employee's active use of social media will make it more challenging for an employer to sever the special relationship built up between the former employee and the client.  An unfair advantage?

In this bulletin, we examine recent decisions and debate measures business can take to protect its goodwill from misuse by a departing employee.  Managing customer connections post-employment requires careful planning and management.  A valid non-solicitation restraint is part of the answer but a more comprehensive strategy is required.

Who owns customer connections on LinkedIn?

A debate waiting judicial comment is who owns connections on LinkedIn:  the employee user or the business.  The debate is perhaps distracting.

Connections are, in one sense, electronic business cards widely distributed.  Business cards themselves are not confidential information but public advertisements.  During employment, the employee ordinarily establishes connections for genuine purposes.  It is difficult to see how such a connection on LinkedIn will itself be the property of the business.

Non-solicitation clauses have utility

Focusing on the interest to be protected, such as goodwill, it can be seen that non-solicitation clauses continue to have utility.  In Planet Fitness Pty Ltd v Brooke Dunlop [2012] NSWSC 1425, the NSW Supreme Court enforced a restraint against solicitation of customers when a fitness trainer placed a post on Facebook advising clients that her new gym would provide the same training at reduced fees. 

What happens however when the contact is more subtle, like a mere notification on LinkedIn of new employment?   

What is solicitation?

It has been said to ‘solicit’ is to ‘ask’, ‘to call for’, ‘to make a request’, ‘to entreat’ or ‘to persuade’. Solicitation does require some influencing or encouragement of a client to leave the former employer.

In the US, it has been held that merely announcing on Facebook that the employee had a new job was ‘somewhere between very weak to non-existent’ evidence of a breach of a non-solicitation restraint.  In other cases it has been held that merely advertising a new business on Facebook, or posting a job opportunity on LinkedIn, did not amount to solicitation.  Neither was it solicitation for a new employer to post on the ex-employee’s Facebook page that the ex-employee was now working for the employer’s business or for that ex-employee to befriend a client on Facebook.

Recently, the NSW Supreme Court had to consider a clause that prevented an employee from "contact [with] clients" during a restraint period.  In Tipto Pty Ltd v Yuen [2015] NSWSC 1086, Tipto discovered that its ex-employee (Mr Yuen) was advertising his new business on LinkedIn.  Mr Yuen's connections included clients of Tipto.  Tipto alleged that Mr Yuen requested some of its clients to connect with him.

The issue under the restraint was whether Mr Yuen was prevented from contacting clients, irrespective of whether he took any steps to persuade clients to cease to deal with Tipto.  There was no evidence of Mr Yuen soliciting these clients. 

The Court was not impressed with Tipto's justification for a prohibition against mere contact.  Absent any evidence of solicitation, the Court said a prohibition against mere contact could not be seen as reasonable to protect goodwill: at [156].  Interestingly, there was a dearth of evidence as to LinkedIn and its impact on relationships with clients: at [122].  Absent any detailed evidence, the Court could only draw the conclusion that Mr Yuen and his former employer's clients "were [simply] connected" on LinkedIn.  No adverse inference could be drawn from mere connection.

Controlling the LinkedIn content published by the departing employee - how far can you go?

Appreciating the power of social media, employers have used interesting tactics to protect goodwill and sever an ex-employee's connection with customers.

An example is the U.S. case of Robert Half International Inc v Ainsworth 2014, WL 7272405 (S.D.Cal Dec 17, 2014).  Robert Half International (RHI) is a recruiter that invests in its employees, systems and processes.  Aside from the usual non-solicitation restraints, the employment contract had clause 13 that prohibited employees after their employment indicating that they were an employee of RHI.  As such, no references to their employment with RHI could be made on LinkedIn.

RHI wanted to prevent employees demonstrating their expertise to competitors.  RHI argued that former employees use the RHI name, goodwill and connections to boost their future endeavours, resulting in an unfair advantage.  The former employees argued that their background was a fundamental sales tool for future business.  Clearly, employment with RHI was a benefit for future endeavours against RHI.

Perhaps not surprisingly, the Court found clause 13 invalid.  It was found to be a mere restraint against competition and void.  It is hard to see a legitimate basis to merely prevent an ex-employee documenting and using their employment history.

Some lessons for business

Dealing with social media post-employment requires careful consideration and strategic thinking. Some suggestions have included requiring employees to disconnect with clients on termination.  Good in theory, but what message does it send to clients and contacts who are disconnected, not knowing that your employee is departing?  Does this approach prevent the ex-employee re-connecting later?

Some more sensible approaches (aside from a well drafted restraint) may include:

• requiring the employee to provide a copy of all their connections on LinkedIn to the business, so that the business is kept informed of important contacts for its business;

• having a carefully crafted non-disparagement clause in the employment contract covering remarks on social media concerning the employer's business, personnel and products post-employment;  and

• requiring the employee to advise connections on LinkedIn of their departure in terms approved by the business, including requiring the employee during the notice period to advertise and promote the employer’s business and their replacement to all connections.

Smarter use of social media may enable a smooth transition of connections from the employee back to the business.

Author: James Mattson