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April 21, 2021

10 Essential Things You Should Know About Restrictive Covenants

1. They are worth having

You may not want to go to Court to enforce them but, if you have a simple and enforceable set of post-termination restrictions, that is unlikely to be necessary.  The party in breach (and their lawyer) will know you have a strong case and will normally give you most or all of what you want in order to avoid a Court claim.

2. Most disputes are resolved quickly

Disputes about ex-employees taking clients or confidential information tend to go no further than the initial flurry of (often aggressive) correspondence.  Most of those disputes that do go further are resolved by the offending party undertaking to stop their activities (for a period of time) and, possibly, paying the innocent party’s legal costs.

3. Evidence

A good set of post-termination restrictions is essential. But, if you want to stop unlawful activity by an ex-employee, you need evidence that they have breached the restrictions. If you suspect a breach gather as much evidence as possible as quickly as possible.  Evidence might include: notes of conversations with clients who have been approached; emails from the ex-employee to clients; company mobile phone records; emails sent by the employee to their personal email account or a third party; documents downloaded by the employee to a USB or other device.

4. Don’t give them loopholes to exploit 

If you introduce new post-termination restrictions during the employment (perhaps on a change of role or promotion) give something in return (known as “consideration”) and have the new contract signed as a deed. If you suspect an employee might be planning to join a competitor, don’t do anything which might amount to a breach of contract – if you do, the restrictions might no longer be binding.

5. Beware of light fingers

Keep the signed and dated contract in a safe place (hard and electronic copies). You may (or may not) be surprised how many contracts go missing shortly before an employee leaves to join a competitor or set up in competition on their own.

6. Have you suffered any loss? 

Are you likely to suffer any loss? If the answer to these questions is NO (their attempts at soliciting clients might have been a total failure) think carefully about whether there is any point in taking legal action.  The employee might have breached the restrictions.  You may be infuriated by their actions. But, if the business is unlikely to suffer any financial loss, there may be no point in doing any more than writing to the employee (and possibly to their new employer) with evidence of their breaches and demanding that they cease and desist immediately backed by an undertaking to that effect.

7. Some restrictions are better than others

Restrictions which prevent employees from joining competitors are difficult to enforce unless the employee is very senior and/or in possession of the most sensitive commercial information.  They are a blunt instrument.  Restrictions which prevent employees from soliciting business from or doing business with clients (with whom they had dealings during their employment with you) are easier to enforce as they are targeted at the particular harm which the employee can cause to your business.

8. Length of notice and restrictions

A 3 months’ notice period along with a 6 months’ period of post-termination restriction should be sufficient for most employees.  Longer notice periods can seem attractive at the outset but much less so when you need to remove an employee who has not worked out and you realise you have to give them 6 months’ notice or pay them in lieu.  12 months of post-termination restriction might possibly be enforceable but there is a risk with anything over 6 months.  

9. Garden leave

Make sure you have a garden leave clause so you can keep the employee employed (and bound by the strict duties which apply during employment) but away from clients during the notice period.  If you send an employee on garden leave where you have no garden leave clause in the contract, that will be a breach of contract and may make the post-termination restrictions unenforceable.

10. LinkedIn and social media

They can be used by employees to let all their clients and contacts know, instantaneously, that they are leaving or have left your employment and where they can be contacted in their new employment. This is a lot easier and may be less risky than calling or emailing their clients.  Consider including a clause in their contract of employment prohibiting this type of communication and requiring the employee to delete all client contact information from their LinkedIn account before they leave your employment.

Action Points

  1. Review (and, if necessary, amend) your Contracts of Employment for those employees who could take clients or confidential information if they leave to join a competitor.
  2. If you prefer not to amend their Contracts of Employment consider introducing a standalone “Business Protection Agreement” to include relevant restrictions.
  3. Put in place arrangements to make sure you consider whether restrictions are necessary for any new starter or any employee who is promoted or changes role.

Contact Us

If you have any questions, please give us a call or send us an email.

E – rayner@raynerjones.uk

T – 01202 932944

In – www.linkedin.com/in/raynerjones

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