Canada: Who "Owns" The Client? Are Staffing Agencies Vulnerable To Their Own People?

For a temporary help, recruitment or staffing agency, acquiring talented recruiters to help grow the business is one of the key elements for success. However, equally as important is how to prevent a top recruiter from walking out the door with easy access to the agency's book of business when she decides it's time to leave.

Recruiters are the ones on the front lines, working directly with new and existing clients and getting to know the ins and outs of their businesses to find the most suitable job candidates for the clients' needs. The connections developed by the recruiters make the agency vulnerable in the event the recruiter leaves to join a competitor or establish her own business.

This begs the question: how can an agency protect that book of business after the recruiter has parted ways with the company? Recent case law has reinforced the utility of non-solicitation agreements as tools for staffing agencies to protect against disloyal recruiters.

Non-Solicitation Agreements

The general consensus in Canada is that, absent contractual obligations to the contrary, a departing employee is entitled to solicit and do business with the clients she dealt with at her prior employer, but is restricted from removing lists or other confidential information from the employer. Without a prior agreement in writing, the distinctions that need to be made to determine rights and obligations in this context can lead to disputes. The difficulty in identifying which information a recruiter can use and who they can solicit, and the potential for tracked and expensive litigation should encourage agencies to use well-crafted confidentiality and non-solicitation agreements. These agreements identify which information is confidential to the agency, the clients which are subject to the restriction and the period of restriction.

In order for a non-solicitation agreement to be upheld a court must determine that the agency has a legitimate proprietary interest warranting protection, and that the restriction is reasonable as to length and scope.

Proprietary Interest

It has been noted by the courts that the staffing industry is not one that automatically gives rise to a proprietary interest in relationships with clients as they often use multiple agencies and seldom develop strict loyalties to a particular agency.

However, a recent case from England, East England Schools CIC v. Palmer [2013] EWHC 4138 (QB), held that a staffing agency's relationship with its clients did give rise to a legitimate proprietary interest capable of protection through a non-solicitation agreement. The Plaintiff was a staffing agency carrying on business in the educational sector. The Defendant recruiter was employed to match teachers with vacancies at secondary schools. The Defendant signed a non-solicitation agreement restraining her for a period of 6 months after the end of her employment from soliciting or dealing with the candidate teachers or client schools with whom she had dealt in her last 12 months of employment. After her employment ended she actively solicited the Plaintiff's former client schools in contravention of her contractual obligations.

The Court held that the Defendant was able to establish real connections with the Plaintiff's clients. She developed meaningful relationships with schools and she had direct communications with them via email and phone calls. As such, it was held that the strength of her relationships with the client schools would lead the schools to consider the Plaintiff as the first point of contact when requiring an agency to assist in filling a vacancy. The cultivation of these meaningful connections was a proprietary interest worthy of protection. Accordingly, the court enforced the restriction on the recruiter.

While this is a case from England, there have been similar sentiments expressed by Ontario courts. An Ontario court is less likely to find a proprietary interest where a staffing agency operates simply on the basis of placing ads through various media; however, where recruiting is done by developing meaningful relationships with the clients, particularly in certain industries such as technology, law, education, etc., it is more probable that an Ontario court will find a proprietary interest worthy of protection.

Takeaways for Temporary Help, Recruitment and Staffing Agencies

To be enforceable and provide value to an agency, non-solicitation agreements must be properly drafted and tailored to the specific nature of the employment relationship. The non-solicitation agreement should: (a) appropriately define the proprietary interest being protected by identifying the nature of the employee's role in building close relationships with clients; and (b) be reasonable as to the length and scope of the restrictions necessary to protect the proprietary interests.

Use of non-solicitation agreements can go a long way in protecting the interests of agencies looking to avoid the loss of clients after the departure of a talented recruiter. When well-defined, they provide peace of mind and can avoid the costs of protracted legal battles.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.