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Competiton from ex-employees? – How Restrictive Covenants can help
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Losing your team is never nice, and if they join a competitor it’s that much worse. So imagine that a whole section of your team ups and leaves for a competing business. You’d really hope that there’s something you can do to stop that happening, wouldn’t you?

One case that has just been settled recently shows that examples like this really can and do happen, even if they are thankfully rare. Willis v Jardine Lloyd Thompson saw an insurance broker lose a whole division to their direct competitor! First the key employees from the division left, then others including senior management, with Jardine Lloyd Thompson ending up with a total of 30 people from Willis within the space of one month.

Willis brought a case to the High Court in the hope to have a ‘springboard injunction’ passed, which would stop Jardine taking any more of their staff, even if those that were left were only the more junior employees. And luckily for them, the court granted them this protection.

This is obviously a nightmare scenario for any employer, and as you can see these nightmares really do become reality sometimes. But it is expensive to go to court the way Willis did; what if you can’t afford to bring a case like this? If you’re a small business, it’s unlikely you have the resource to take something to this level. Is there anything you can you do to prevent a competitor poaching a key team from your business?

What are Restrictive Covenants?

Restrictive covenants can help prevent cases like this. If you have up to date employment contracts, you may already have these clauses in place, but Restrictive Covenants are perhaps the most important tool available to an employer to prevent competitors poaching your staff for their gain, or even stop employees becoming competitors themselves.

Restrictive Covenants are clauses in employment contracts which help stop your employees doing unreasonable things when they leave. Such as joining one of your competitors or starting up in competition with you within a few months of leaving your company. These often restrict your staff from working for any competitive business within a certain geographical area, for example, to prevent these ex-members of staff “poaching” your customers.

If your competitors aren’t necessarily based near you, restrictive covenants can still help. You can restrict your employees from joining a competitor in a certain industry, for example, rather than one based in a particular area. And you can also specify that your staff are not allowed to approach your customers for work or your current staff with job offers within a certain period after leaving you, too.

Using Restrictive Covenants in your small business

Restrictive Covenants have often been challenged and hard to enforce in the courts, so how can a small employer use these clauses effectively to protect your business?

It all comes down to being reasonable, as with many things in the HR world. It is important that you don’t try to tie people down so much that they could not earn a living at all for a few months after leaving your company. So take a look at the length and scope of the terms you have set out in your Restrictive Covenant – after all it wouldn’t be reasonable to stop someone from working with any company after they leave you, or from setting up on their own at any time in the future.

Therefore, it is up to you to include something sensible. This often means a six month cooling off period – whereby the employee cannot work in the same industry during that time. Six months might not seem like a long time, but it can be used by you to cement business relationships, should you feel there is a risk the employee might try and take your customers. And it’s all you are likely to have upheld by a court for most of your people. This can be extended to 12 months or even longer for more senior staff, depending on the circumstances and the scope of the business.

Let’s take an older case as an example. A former recruitment consultant for East England Schools CIC (trading as 4myschools) in 2013 brought a case to overturn a Restrictive Covenant that stopped her (for six months) from dealing with candidates or schools she had worked with in the 12 months up to her departure. And in this case she was unsuccessful, the High Court deeming the Restrictive Covenant legitimate, and more importantly awarding her former employer just over £7,000 in damages.

So as you can see, Restrictive Covenants can be an efficient way for small employers to protect their business against unfair competition from ex-employees. And whilst they may not always be enforceable, they will usually make former employees or new employers think twice. Even if it’s still expensive to fight a Restrictive Covenant, as with any employment dispute, if an employee has agreed to those terms you have a good chance of enforcing them.

Can I add Restrictive Covenants to an existing contract?

It’s also worth noting that if you don’t have Restrictive Covenants in place now but feel you might face an issue like this, you should act sooner rather than later.

If you decide to add Restrictive Covenants to your existing employment contract, you will need to provide additional benefits in return for these restrictions for it to be enforceable.

So as long as you’re fair and reasonable, and can give your employees good reason to accept Restrictive Covenants in their contracts (just like you would give them a good reason to work for you in the first place), as an employer you can use this sort of clause to protect your company from employees going into competition with you within a short time of leaving.

If you need help with your employment contracts, why not take a look at how we can help, or request a call back today.


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