November 2016

Earlier this year, Mike Pero New Zealand Limited (‘Mike Pero’) alleged that an ex-franchisee – Krish Krishna – breached the terms of non-compete orders.

Restraints of trade/non-compete clauses are contractual provisions restricting the activities of employees after termination of their employment. As a matter of legal policy, they are regarded as unenforceable unless they can be justified as reasonably necessary to protect proprietary interests of the employer and are in the public interest. Generally, restraint of trade provisions restrict the conduct of former employees after the termination of employment in three different ways. A restraint can prevent:

• an employee from ceasing employment and working for a competitor of the employee’s former employer;
• a former employee soliciting work from the customers and/or clients of the former employer for the employee’s new employer; or
• a former employee from soliciting their former colleagues to leave the former employer.

Mike Pero argued Krishna had infringed the non-compete orders by advertising himself on the social network LinkedIn and on the Professional Advisers Association (‘PAA’) website and thereby attempting to solicit customers of Mike Pero. Krishna’s pages included his name, contact information, education and experience. There was no mention of Krishna previously being a franchisee of Mike Pero.

Justice John Faire referred to various definitions of ‘solicit’ and decisions analysing what amounts to ‘solicitation’. He concluded that there is a broad interpretation of solicit that does not necessarily require proof of a repetitive request or entreat to do business. Whether the actions of a party constitute solicitation or an attempt to solicit will turn on the particular facts.[1]

His Honour, when considering the contempt and arrest warrant application, said anyone looking for Krishna’s LinkedIn page would need to be actively searching for him. ‘…even if a client found Mr Krishna’s LinkedIn page its contents do not amount to Mr Krishna urging or entreating a client to do business with him. Accordingly, I do not believe that the LinkedIn profile amounts to an attempt to solicit MPNZ’s [Mike Pero’s] customers.’ [2]

When it came to the PAA website, the judge made a similar finding.

‘ … a client would need to be actively searching for information on Mr Krishna or for a mortgage broker. There is no evidence that Mr Krishna promoted the listing in any way or referred any of MPNZ’s customers to it. Although, under a broad definition of ‘solicit’ presence and a willingness to do business may be sufficient, on the facts of this case, the PAA listing is, in my view, too far removed from the clients of MPNZ to amount to solicitation of them,’ Justice Faire said.[3]

Accordingly, Mike Pero was unsuccessful.

[1] Mike Pero (New Zealand) Ltd v Krishna [2016] NZHC 1255 – Faire J – 10 June 2016, [70]

[2] Ibid, [77]

[3] Ibid, [81]