Protecting Your Business With Restrictive Covenants
Richard Gvero, Joint Senior Partner and Head of Employment, answers some of the questions he typically gets from businesses about putting restrictions in employment contracts.
How do we prevent outgoing employees taking customers with them?
Employment contracts can contain restrictions on what employees can do after they leave your employment. Those restrictions can prevent employees from taking customers, commercially sensitive information or indeed working in competition for a period.
But I have heard that such restrictions are not worth the paper they are written on. Is that correct?
No, absolutely not. Whilst there can be enforceability issues, if the restrictions are carefully drafted, they will achieve the desired objectives.
What enforceability issues might there be?
The restrictions must be reasonable, otherwise they will be considered in “restraint of trade”, that is excessively limiting the operation of a business in a free economy or the use by an employee of their skills in pursuing their career and unenforceable.
To be reasonable and proportionate, the restrictions need to be no greater than is necessary to protect legitimate business interest (rather than designed simply to limit competition). For example, the restriction must not last longer than is necessary. It must not extend geographically more than required given the employer’s scope of operation.
Generally, they should only concern customer relationships of the outgoing employee and not of the business more generally. However, there is no “one size fits all” approach. The restrictions need to be bespoke and tailored to the individual employee and business, otherwise they are likely to be invalid.
What can an employer do if these restrictions are breached?
The employer can take swift court action to stop the breach and to recover damages in respect of any loss that they may have suffered, for instance as a result of an ex-employee diverting a customer from their former to their new employer.
There are some very effective remedies available, such as emergency injunctions (to stop the wrongdoing) or an order to “image” the computer system of a competitor if information has been unlawfully taken and misused. This serves to preserve evidence and assists in obtaining the appropriate remedy.
Do you have any practical tips?
Apart from making sure that employment contracts contain the necessary restrictions and protections, it is also important to act swiftly when issues such as these arise. Not only would that minimise any loss suffered but Courts are reluctant to make protective orders if there has been significant delay in addressing the problem. Most of the damage is likely to be done in the first few days or weeks of an ex-employee working elsewhere.
So, if you are ever concerned about a breach, act quickly. And if you need to start using restrictive covenants for new employees (or you need to check enforceability of existing restrictions), then get in touch and we can offer you appropriate advice.
Here to Help
If you would like to discuss employment contracts, please contact Richard Gvero, Joint Senior Partner and Head of Employment and Commercial.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.
This article was originally written for Inspire Magazine.
NLA article not to be reproduced.
