The recruitment industry and post-employment restraints

Recruitment is a competitive and fast-moving industry.  Recruitment agents, by the very nature of their job, have direct access to clients and candidates.  The best recruitment agents have an aptitude for building up close relationships with their contacts in order to obtain a degree of trust and provide a personal touch.  As such, recruitment agents often accumulate valuable and specific information about the clients and candidates with whom they work.

Despite this, it is often difficult to restrain a departing agent from certain working practices after they leave one company and move on to another- for example working for a competitor or using their old employer’s confidential information.

It is difficult, but it is not impossible.

A recent UK High Court decision[1] held that these close relationships often affect the choice of agency that the client or candidate choose to work with.  The Court decided that, despite the fact that much information to do with the recruitment business is now publicly available online (e.g. LinkedIn), certain information acquired during the course of employment that is not publicly available - such as the special requirements of clients and candidates and the personalities concerned - was worthy of protection.  That ‘close relationship’ feature was an influencing factor in the Court determining that non-dealing and non-solicitation post termination restrictions were enforceable.

Although decided in the UK, the reasoning in the case is consistent with the common law approach in Australia in respect of the right to protection of an employer’s legitimate business interest in a “customer connection”.  The case ofEmeco International Pty Limited v O’Shea [2012] WASC 348 commented that post employment restrictions in respect of non-dealing and solicitation may well be reasonable and enforceable in situations where an employer has a legitimate interest in its confidential information and protecting its customer connections.  In this case the departing employee was described as the “face of the company” to the employer’s customers and potential customers and built up close relationships with important clients of Emeco in a highly competitive industry.  It was those close connections that the court found material to finding that the non-competition restraints were enforceable.

Due to the unique nature of the recruitment industry, it is entirely possible for employers to impose binding and enforceable restraints on their former employees.  The trick is to ensure that the restraints are drafted in such a precise and accurate manner that they are legitimate and enforceable.  Often restraints in contracts are unenforceable on the basis that they do not focus adequately on the relevant protectable interest.

Key take-away point for employers:

We recommend that you carry out an audit of your employment contracts, particularly in respect of employees who have sustained and close contact with customers and clients.  Aim to ensure that they contain appropriately drafted restraint clauses.