At a glance
As told to Susan Muldowney
Question: “I have recently left my former employer and set up a small public practice. Despite signing a restraint clause that technically prohibits me from poaching my former clients, several of them have reached out and enquired about switching to the new business.
I am also tempted to contact some of my other former clients whom I have long-standing relationships with, and whose businesses I know intimately. Is it wrong to take on clients of my old firm, either passively or through active poaching?”
Answer: Building up a client list may be a priority for new business owners, but how you gain those clients involves ethical and legal obligations. It is important to note that all work engagements are unique, and when employment ceases, provisions will play out differently for different people.
Let’s start with the legal side.
If you have signed a restraint clause, which technically prohibits you from poaching former clients, you may face legal consequences if you accept them as clients in your new practice. When an employee signs a restraint clause, they agree to the legal requirement of non-solicitation.
In some cases, these clauses are enforced for a set period following the termination of employment and may require former employees to neither directly nor indirectly solicit, canvas or attempt to entice away any client from the employer.
However, these clauses may not prevent a former employee from accepting business from a former client who independently initiates contact, provided they do not encourage or influence the contact.
In the question outlined, the former clients have approached you, so you may not be in breach of the restraint clause if you sign them up to your practice. However, there are ethical considerations.
APES 110 Code of Ethics for Professional Accountants (the Code) outlines the fundamental principles of accounting, one of which is confidentiality.
Clause R114.4 of the Code states: “A Member shall continue to comply with the principle of confidentiality even after the end of the relationship between the Member and a client or employing organisation. When changing employment or acquiring a new client, the Member is entitled to use prior experience but shall not use or disclose any confidential information acquired or received in the course of a professional or business relationship”.
If a former client voluntarily contacts you and expresses an interest in switching to your practice, you may accept them, provided you do not use or disclose any confidential information gained from your former employer and your conduct remains transparent and professional.
Poaching former clients also presents a breach of the Code. For example, if you know that a former client is unhappy with the fees charged by your former employer, it would be a breach to contact them and offer to charge a lower fee to entice them to your practice.
Or, if you know that a former client has a specific taxation issue, it would be a breach to contact them with a solution if they switched to your firm.
Other ways in which the principle of confidentiality may be breached include utilising your old employer’s client lists without permission, using their pricing strategies, adopting their proprietary methodologies or divulging non-public information gained while employed at the firm.
In addition to confidentiality, poaching breaches the fundamental principles of integrity and professional behaviour, as it is dishonest and considered unprofessional.
For both ethical and legal purposes, it would be wise to issue an engagement disclaimer letter to former clients that outlines your appreciation for their interest in engaging with your new practice, asserts that your practice is committed to the highest standards of ethical conduct in accordance with the Code, and confirms that their decision to contact you was entirely independent.
The letter should also state that you will not use or rely on any confidential information obtained during prior engagements or employment, and that their engagement with your practice will be based entirely on fresh documentation and authorisations.
Be sure to keep a copy of this signed document for your records.
Brendan O’Connell FCPA is the global president of the Institute of Certified Management Accountants Australia and New Zealand, and a current member and past Chair of the CPA Australia Centre of Excellence for Ethics and Professional Standards.
Disclaimer: This article should not be considered as legal, tax or financial advice and may not reflect the views and opinions of CPA Australia. CPA Australia does not warrant or make representations as to the accuracy, completeness, suitability or fitness for purpose of this publication and disclaims all liability and responsibility for any acts or omissions made in reliance of this publication. Readers should seek their own professional advice that takes into account their own personal circumstances.
