Don’t just sit by and watch in alarm as a former employee, contractor, or competitor poaches your clients. Texas law protects valuable trade secrets from misuse and misappropriation – including client lists. These protections can give you legal grounds to defend your client information from exploitation by former employees or competitors.
According to the Texas Uniform Trade Secrets Act (TUTSA), a trade secret is information that has economic value because it is not generally known, and which a company has made reasonable efforts to keep secret. Client lists are a valuable business asset. If your business has made reasonable efforts to protect your client lists, you can take legal action to stop former employees or competitors from going after your client relationships.
What Is Client Poaching?
When an employee leaves the company – either to join a competitor or to start a competing business – they may try to encourage clients to join them at their new company. A former employee may also maliciously share protected client information with a competitor who then directly solicits your customers or clients.
This is called “client poaching” and endangers your proprietary information, profits, and client relationships.
Examples of client poaching can include:
- An employee intercepting calls from potential clients and soliciting them to do business separately;
- A vendor, supplier, or contractor soliciting mutual clients to provide competing products or services; or
- An employee who leaves to start a competing operation and asks clients to follow him or her.
What may NOT be an example of client poaching? You may not have a legal claim if:
- The client list is easily ascertained through public sources, such as an internet search;
- The former employee advertises in the local newspaper or social media and your clients respond; or
- A client follows your employee to a competing operation but was not directly or actively solicited.
Is Client Poaching Illegal?
Client poaching is not outright illegal, but it can violate certain business laws, such as the Texas Uniform Trade Secrets Act, or breach the terms of existing agreements, such as a non-compete or non-solicitation provision in the employment contract.
Can I Sue a Competitor for Poaching My Clients?
TUTSA allows businesses to take legal action when misappropriation occurs – or even if it has been threatened – provided that:
- Improper means were used to acquire the trade secret; and
- A trade secret was used or disclosed without consent.
Typically, a trade secret misappropriation case will consist of three general phases:
- Filing of a lawsuit and application for a temporary restraining order
- Temporary injunction that stops the defendant from a specific act
- Litigation for the recovery of damages
In addition to injunctive relief, businesses are also entitled to the recovery of any financial damages resulting from misappropriation. This includes actual losses and unjust enrichment, or royalties for the unauthorized use or disclosure of a trade secret. In cases where misappropriation was willful and malicious, exemplary damages may also be awarded against the defendant.
How Do I Prevent Competitors from Poaching My Clients?
The best way to prevent client poaching is to take reasonable measures to protect the secrecy of your client list. This will maintain its protection under Texas law.
What are reasonable measures to maintain the secrecy of your client list?
- Label client information as “proprietary and confidential”
- Limit access to client information on a “need-to-know basis”
- Employ physical and digital security, e.g., stored in locked cabinets or password-protected
- Ask employees, customers, independent contractors, and vendors with access to confidential client lists and information to sign a confidentiality or non-disclosure agreement (NDA)
- Use non-compete or non-solicitation agreements
Review more measures you can take in our blog article “Protecting Trade Secrets In Texas: How Do You Identify And Secure A Trade Secret?”
How Do I Defend a Client Poaching Lawsuit?
The best way to defend against claims of client poaching is to demonstrate that you did not solicit clients improperly, or that you obtained the client list through public means.
It gets tricker if you are bound by a non-solicitation, non-compete agreement, or confidentiality agreement. However, these agreements are not always enforceable. If a non-compete or non-solicitation agreement is too broad or does not protect a legitimate business interest, Texas courts may revise the scope of the agreement or decline to enforce it altogether.
