How to stop ex-employees leaving and poaching your customers


Roger Mendelson, CEO of Prushka Fast Debt Recovery

Businesses that depend on personal relationships with customers are at risk of employees poaching their clients when they leave.

Restraint of trade in contracts or clauses in contracts are unenforceable, however it is important to impose reasonable restrictions on your employees to mitigate risk and avoid loss.

You cannot prevent an ex-employee from opening up in competition or going to work for a competitor, but you can restrict them from canvasing your customers, particularly during the time they are still an employee.

Preparing a restraint clause that they need to sign will provide you with security and discourage employees from even considering building a business, based on your customers.

The ideal place to incorporate the clauses is in the initial offer of employment, otherwise a separate document is also appropriate.

The clause should extend not only to the employee opening a business, but also going to work for a competitor and then attempting to poach your customers. I suggest the following points:

The Employee shall not:


  • Compete with the business conducted by the Employer within a radius of three kilometres of the Employer’s business address;


  • Canvas a customer of the Employer to cease being a customer of the Employer.


If employees are not prepared to sign, it is a warning sign that you need to watch them carefully.

A good idea is to also incorporate a training clause in the event where a new employee leaves within a specified period from the date of commencement, say within three months. The clause would require a compensation fee for the time and effort spent in training the new employee.

If you are considering setting up these provisions, I strongly suggest that you have them drafted by a lawyer. It will be a small price to pay for peace of mind. If you are interested in Mendelsons Lawyers preparing a draft clause for you, contact Sue Stevens at Mendelsons Lawyers on (03) 9872 7289 or svs@mendelsons.com.au



This article originally appeared on Business First Magazine.

Roger Mendelson is CEO of Prushka Fast Debt Recovery Pty Ltd and is a principal of Mendelsons Lawyers Pty Ltd. Prushka acts for in excess of 52,000 small to medium size businesses across Australia and operates on the basis of NO RECOVERY - NO CHARGE service. Roger is also the author of The Ten Mistakes Businesses Make and How to Avoid Them and Business Survival.