Stealing contacts and clients can be a big problem in the real estate industry. Find out how to apply the right protection measures to prevent IP loss and frustration.
With rental property vacancies being low in Australia at the moment, the playing field for new PUMs is highly competitive. Unfortunately, some individuals resort to underhanded tactics of stealing and poaching other agency’s clients. This situation is highly frustrating, especially when you realise you are losing market share to a former employee who has stolen your agency’s contact list.
Here’s a quick outline of the rules around former employees going after your clients and some information about how to protect your IP in this area:
Who owns your clients?
The question of who owns clients comes up in every industry, from hairdressing to high-end legal practices.
A property manager who has worked with you for years will have a bank of phone numbers and clients who they work with closely. Even a morally upstanding employee may be tempted to ‘take’ a few people with them when they leave, especially because the law can be somewhat difficult to interpret in this situation.
Firstly, generally speaking, yes, a former employee is able to compete with you for clients. However, as our research found, your employee is not allowed to gather contact numbers and ‘prepare’ for their departure by asking clients to transfer with them when they leave. If this happens, you may be able to take legal action against them and claim for damages - provided you can prove there has been a financial loss to your business.
Because the law can be ambiguous, if you want to protect your agency’s contact list and prevent an issue where you have to take legal action, the best step to take is to include a 3 to 5-year restraint of trade clause in your employment contracts.
What is restraint of trade?
Prevention is better than cure. Setting clear rules around employees taking clients with them when they leave your business will make it easier to take action against them if you need to.
A restraint of trade clause may say something along the lines of:
The Employee agrees that for a period of 60 months following termination of employment, they will not directly or indirectly solicit or manage any clients or properties under the Employee's care during their tenure with [Agency Name]. Furthermore, the Employee agrees not to engage in or provide property management services within a 20km radius of any office of [Agency Name] for the same period.
You can finalise this type of clause with the help of your legal team. You may include specifics which forbid downloading or printing contact lists from your business database.
Include this clause in your contracts and make sure you discuss it directly with new hires so you can verbally confirm they have read and understand the details.
Restraint of trade may also apply if team members are transferred as part of a rent roll sale or for the rent roll itself. In this case, the vendor of the rent roll is prevented from going after new business in direct competition with the purchasing agency.
Read more: Employee Restraint of trade in a rent roll sale
Penalties for ‘stealing’ property management agency contacts
The repercussions of stealing property management agency contacts can go beyond providing compensation to a former employer.
As reported on reb, one NSW operator received a 12-month licence cancellation for “syphoning” customers from his previous employer and exploiting confidential client lists for his personal advantage.
While it’s always good to see justice served, the main goal is not to have to take legal action. Adding the restraint of trade clause to your contract and limiting access to full contact lists are the best preventative measures.
If you are growing a team or planning to sell a rent roll, legal advice around restraint of trade and how to apply it to your employee contracts is essential.