If you run a small or medium-sized business, you’ll expect employees to come and go over the years; hopefully always on good terms. This doesn’t always happen, though, and sometimes you have to let someone go even though you’re worried about them becoming competition.
There’s all the horror stories about the leading salesperson leaving to set up their own company and taking all the clients with them, or poaching all the best staff.
This is why it’s a sensible move to include clauses in workers’ contracts that help to prevent them competing unfairly with you in your area, or taking clients and key staff with them when they go. Ideally, these clauses – restrictive covenants – should be drafted by employment lawyers like elliswhittam so that they’re fair to both parties.
It’s important to be fair
The restrictions in the covenant should be reasonable in scope and duration – you can’t stop an ex-employee from earning their crust on your patch and, after all, competition is good for everyone.
There’s the legal presumption in the UK that any attempts to stop someone trading lawfully are unenforceable. It can be a bit of a grey area, though, so a lot of the legislation and individual cases look to precedent and to what’s happened in each sector for guidance. This is why bringing in the professionals is a wise move.
You should aim to protect your own interests while making sure your ex-employee is free to develop and protect theirs once they’ve left.
There are a few types of restrictive covenant
1. Competing in the same area
If a former employee could set up their own business to directly compete with you, especially if they’re using the experience they gained while working for you, then you can protect your business against this with a non-compete clause. These clauses usually specify a particular area and a particular period of time.
2. Using company confidential information
Most employment contracts have sections on confidential information and intellectual property which help to prevent current and former employees from using the information or material they had access to or created while working for you.
3. Poaching clients or customers
A non-solicitation clause can help to prevent an ex-employee from taking away any important customers or clients that they’ve built up relationships with while under your employ.
4. Poaching employees
You can protect yourself against losing more important employees by including a similar non-solicitation clause to the customer poaching one. It means the former employee will think twice before attempting to entice your key staff away.
Not all restrictive covenants are the same
Additionally, not all employees need to have them. It’s neither fair nor practical to give them to all of your employees; in fact, the more restrictive covenants you have, the less enforceable they become, especially if they’re all the same. You need to look at what your employees do and how much of a risk they pose – try to restrict your restrictive covenants to the highest-risk workers.
You should also use the minimum amount of restriction as if it’s too swingeing it simply won’t be enforceable. It’s important to review these clauses as your employees are promoted or moved around your organisation, too.