Top five tips for protecting your business from a departing employee11 Apr 2016
There is never a shortage of people willing to warn you about the dangers of employment law to the unwary employer. However, it is easy to only focus on the employee’s rights and forget those that you have as the employers – there are many protections available to companies that can be used to commercial advantage.
One area (and there are many) that businesses often fail to make full use of is the application of restrictive covenants in employees’ contracts. Used properly, contractual restrictions can prevent former employees from damaging your business and can deter them from joining competitors, or starting up a rival operation.
Here are our five steps to putting these into place and protecting your business.
1. Get the contract right
Any contractual term restricting an employee’s activities after termination is void for being in restraint of trade and contrary to public policy, unless the employer can show that:
- it has a legitimate interest that it is appropriate to protect; and
- the protection is no more than is reasonable.
In this context a “legitimate interest” cannot be a desire to avoid competition per-se but may include interests that “belong” to the business, such as confidential information, team stability, customer and supplier connections, and goodwill.
The restrictions which are reasonable to protect any business are as individual as the relationship between the business and the particular employee. If you are using a contract or restrictive covenants which you have lifted from the internet, or from another contract that you thought looked convincing, there is a good chance they will not work. Badly drafted restrictions are as useful as having no restrictions at all. Think also about which employees you need to restrict and how – you may not need to treat a sales manager in the same way as a receptionist.
2. Get the contract signed
This might sound obvious but if you have gone to the trouble of putting in place a good set of restrictions, you should ensure that the employee has signed. A court may be willing to accept that the restrictions have been agreed by taking account of the employee’s conduct but you can save yourself a great deal of risk by ensuring that the employee has been given the restrictions as part of their contract to prevent any disputes.
3. Update the contract and the restrictions if the employee’s position changes
The protection you are asking for in the contract – and whether or not it is reasonable – is judged from the point that the contract was entered into. For instance, your top sales manager or most senior technician may be signed up to some restrictions that are completely reasonable to protect your business interests now, but if they signed them when they joined as an apprentice or a warehouse operative they wouldn’t have been relevant. In fact, whenever you are giving an employee a pay rise, you should give some thought to whether to get some tighter protection at the same time. If the circumstances change, repeat steps 1 and 2 above.
4. Don’t breach your own contract
If you breach the terms of the contract that you have with an employee you will not be able to rely on the restrictions contained in the contract. It is not unheard of for employees to try to build a contractive dismissal claim before leaving, to secure a release from their restrictions and join a competitor, or start up a new business. Employers also need to take care that notice periods are handled correctly and that the correct payments are made.
5. Get the evidence of breach
If you have done everything else right, the final piece of the jigsaw may be proving that your former employee is in breach of the restrictions. Check the email traffic on your departing employee’s account for data being sent to a private email address. Emails, texts, social media and voicemail messages are also fertile ground for finding helpful acknowledgements from your customers or suppliers of planned meetings or business proposals.
It’s worth keeping their email account open and monitoring it in the months after the employment has ended. Former employees who breach valid restrictions can find themselves on the wrong end of expensive court proceedings, being prevented from taking up new roles and stuck paying for their former employer’s legal costs.
Businesses that fail to take restrictive covenants seriously risk their employees walking away and causing serious damage to commercial relationships, giving away business know-how and destabilising their workforce.
To speak to one of our experts about any aspect of employment law, contact us or call 0161 832 3434.