One of the questions I get asked rather often is “How far can an employee go to try to solicit his old clients before a New York court will say, that’s it, you’ve gone too far?”
In other words, where do New York’s courts draw the line as to what constitutes proper – and improper – solicitation of a former client?
To that end, New York’s Court of Appeals addressed this question in its landmark decision in Bessemer v. Branin.
In that case, one of the central questions facing the court was whether the defendant, who had worked in the financial sector, had improperly helped his new employer solicit his old, high net worth clients away from Bessemer, his former employer.
In rendering its decision, the Court began its analysis with the following policy considerations:
Under New York common law, a seller has an “implied covenant” or “duty to refrain from soliciting former customers, which arises upon the sale of the ‘good will’ of an established business” (Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276, 283, 419 N.E.2d 324  ). … It is not right to profess and to purport to sell that which you do not mean the purchaser to have; it is not an honest thing to pocket the price and then to recapture the subject of sale.”
The Court continued as follows:
“Notwithstanding this ‘implied covenant,’ a buyer assumes certain risks when he purchases an existing business and attempts to transfer the loyalties or “good will” of that business as his own. For example, the customers of the acquired business, “as a consequence of the change in ownership,” may choose to take their patronage elsewhere.”
Now, getting down to “brass tacks,” and establishing the rule, the Court stated as follows:
The ‘implied covenant’ not to solicit former customers bars a seller from taking affirmative steps to directly communicate *558 with them (see e.g. Hyde Park Prods. Corp. v. Lerner Corp., 65 N.Y.2d 316, 321, 491 N.Y.S.2d 302, 480 N.E.2d 1084 .
“Okay, so where does that leave us?” you ask.
The Bessemer Court stated that
“A seller may not, for example, send targeted mailings or make individualized telephone calls to his former customers informing them of his new business ventures … On the other hand, absent an express or restrictive covenant not to compete, a seller of “good will” who lawfully competes with a purchaser may advertise to the public. So long as such advertisement is general in nature—and not specifically aimed at the seller's former customers—it is permissible under New York law.”
“But what if the client reaches out to you, rather than the other way around?” you ask.
The Court answered that as well, stating:
We conclude that, while a seller may not contact his former clients directly, he may, “in response to inquiries” made on a former client's own initiative, answer factual questions.”