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Business relations clause breach through use of LinkedIn

11/05/2011

The courts ruled that the employee breached the business relations clause agreed between parties by extending via LinkedIn an invitation to a business relation of his former employer. As the business relations clause stipulates a penalty in the amount of € 10,000.00 for each breach, the employee is ordered to pay € 10,000.00 for this breach of the business relations clause.

Business relations clause
Employer and employee have terminated the employment contract in mutual agreement. The settlement agreement included a business relations clause. This business relations clause reads as follows:

Without employer's prior written permission employee shall not during the period of one year after the end date of the employment contract either as a private person, as a self-employed entrepreneur, as an employee in the employ of third parties or in any capacity whatsoever, either directly or indirectly, have or maintain contact, in the broadest sense of word, with the following business relations of employer: xxxx, xxxx and xxxx.

A breach of this prohibition shall cause the employee to forfeit in favour of employer a penalty due immediately and payable in full, without a demand letter or default notice being required, in the amount of € 10,000.00 per breach.

First breach of the business relations clause
Employee's former employer alleges that employee twice contacted a business relation specified in said business relations clause in breach of business relations clause and institutes interlocutory proceedings. The Sub-District Court, having accepted that the employee has twice breached the business relations clause, ordered the employee by judgement to cease all contact with the business relations, specified in the business relations clause, until 1 April 2011 and to pay the former employer € 20,000.00 (2 breaches) plus interest, by way of forfeited penalty sums.

The Sub-District Court disallowed employee's defence that the business relations clause regarded only business contacts with the business relations specified therein, at least that this is how he construed and was justified to construe the clause. The Sub-District Court holds that the business relations clause clearly stipulates a prohibition against all contact with the specified business relations. This judgement was not appealed and the employee paid the € 20,000.00 to the former employer.

Second breach of the business relations clause
After this judgement, the employee again contacted a business relation specified in the business relations clause, i.e. by (i) inviting this business relation to make a quotation, by (ii) registering for a lunch organized by this business relation, and (iii) by maintaining contact via LinkedIn with an employee of this business relation.

The former employer again instituted interlocutory proceedings to again enforce compliance with the business relations clause and collect the penalty sums.

In these proceedings the Sub-District Court holds that the employee breached the business relations clause by, among other things, having contacted a female employee of the business relation via LinkedIn. Proof of the contact via LinkedIn is furnished by way of a printout of a page of the website of LinkedIn evidencing the fact that and the date when parties were in fact 'linked' to one another. The printout of the website showing that parties were in contact in the period of the agreed upon duration of the business relations clause is accepted as proof that employee again breached the business relations clause. Consequently, employee is ordered to pay, for this breach as well, a penalty sum in the amount of € 10,000.00.

The Sub-District Court holds that this penalty sum is not subject to mitigation, because enforcement of the penalty clause does not produce an excessive and hence unacceptable result. In this context the Sub-District Court considers not only the ratio between damage sustained and size of the penalty but also the nature of the agreement as well as the substance and purport of the clause. Another aspect concerns the circumstances under which the business relations clause is invoked. The contractual penalty serves as an incentive to ensure performance of the contractual obligation. The issue in this case is the employee's failure to perform a material obligation, i.e. the obligation to refrain from all contact with a number of business relations. The nature and severity of the breach can therefore be no cause for mitigation of the penalty sum. Nor do the other facts and circumstances produce grounds for mitigation.

Conclusion
This decision is a provisional judgement and may be reviewed again on appeal or by another court in an action on the merits. These courts may rule that an invitation via LinkedIn does not constitute a breach of the business relations clause. However, this decision does show the growing impact of the use and the implications of social media on employment law.

Initially, the use primarily concerned the information to be had via LinkedIn, Twitter, Hyves and Facebook in the context of recruitment and selection of employees. Then this information started to be included in dossiers touching on employees' private lives e.g. in the context of an employee performing side activities or having reported sick. And now the information to be had via the Internet evidently also plays a role in the review of disputes after the end of the employment contract.

Employers and employees can therefore ill afford to disregard the role of social media. Employers are able to gain a wealth of information about potential employees and potential employees, and employees must remain aware of the implications of using the social media, as these can prove to be unexpectedly