Go! – By Eluned Ward
Go, walk out the door but don’t go anywhere
One of the concerns for a business when somebody leaves is whether the employee will set up in competition with them, solicit orders from their clients and entice employees to work for their new company. The most common way for a company to stop this from happening is put a restrictive covenant into the contract of employment with some of them going on to obtain injunctions to stop the employee working for the new company or setting up in direct competition. However the Government is considering proposals to ban (or severely restrict), the use of contractual clauses that restrict where and how employees can work after leaving their employment and has started a consultation process on non-compete and non-solicitation clauses which is due to close on 22 May
If the proposals go through, it could mean that any restrictive clauses will have to be watered down or removed from the contract of employment. Whilst the proposals are still only at the consultation stage, restrictive covenants in contracts can still be non-enforceable by law. So what can a company do to protect itself:
- Any covenants should not be so restrictive that it would mean an employee is unemployable if they leave your company i.e. not allowing somebody to work in a similar business within a 50 mile radius would be seen as unenforceable by the courts
- Consider the role the employee is undertaken and alter the restrictive covenant accordingly i.e. a sales executive will have a high level of access to clients then a receptionist
- Any restrictions put in place have a legitimate aim and will protect the business’s interest
- Avoid a repudiatory breach of contract i.e. not paying notice pay as this would make the restrictive covenants unenforceable
- Consider updating any restrictive covenants when an employee changes roles to ensure that the covenants are still relevant
- Ensure your contracts of employment include the right to put somebody on garden leave i.e. pay them but not expect them to attend work
- Evoke the garden leave clause making it clear to the employee what they can and cannot do during this period
With regards to restrictive covenants, you also need to consider them when employing new people as they may be subject to restrictive covenants which could impact on their ability to work for you including starting with you or completing certain tasks. You should always check with a prospective employee if they are subject to any restrictive covenants which could leave you, the new company liable for a claim of damages from their previous employees.
Please contact High Performance Consultancy if you want further advice on how to protect your business when an employee leaves your business or if you would like for us to review your restrictive covenants for your key staff.