Before an employee leaves to join a competitor
Employers are currently able to include restrictive covenants in contracts of employment. These clauses can protect the business in several ways by, restricting an ex-employee from joining a competitor, soliciting, and dealing with customers, and poaching other staff members.
If you as an employer do not include restrictive covenants, they are badly drafted, or they are out of date, your business could be left vulnerable.
Your restrictions should be intended to protect legitimate interests of the company and go no further than is reasonably necessary, including in their duration. Additionally, they should consider the role and responsibilities of the employee at the time the contract was signed and it’s important to consider the need to change and update the contract clause if and when an employee’s role changes.
Other items to include in your employment contracts that will help to protect your business include:
- A garden leave clause
- Protection of confidential information and intellectual property
- An obligation to act in the best interests of the business and their employers
- Limitations to activities of the employee outside of their jobs
- Notice period of an appropriate length including scope for the employer to pay in lieu of notice
If you want to ensure the strength of your restrictive covenants, or want assistance to put them together, contact our Employment team today.
During the process of an employee leaving to join a competitor
It is important to have your affairs in order as soon as you are aware of an employee leaving your business, especially if you believe they are moving to one of your competitors. Some early steps to consider following are:
- Having a meeting with the employee in question to remind them of their contractual obligations.
- You may be able to obtain information on the employee’s future work plans.
- Complying with Data Protection Laws, you could consider monitoring the employee’s IT system to make sure they are not sending confidential information to their new employer or retaining it for their use.
- Consider putting the employee on garden leave.
- Consider whether you want to encourage or give incentive to the employee for them to stay with your company.
This can be an effective way of keeping an employee away from confidential information, clients, and other members of staff.
You should ensure that your employment contracts allow you to implement garden leave. We also recommend bearing in mind that any period of garden leave will likely decrease the length of any restrictive covenants you want to enforce.
It is reasonably common to draft restrictive covenants to reduce the duration of all covenants by any time already spent on garden leave. This can be argued to make the covenant more likely to be considered reasonable in terms of its duration by the courts.
Incentivise the employee to stay on
In some circumstances, it may be that you wish the employee to stay with your company. It may be that a pay increase, or an alternative benefit, might convince the employee to stay.
Hold an exit interview
An exit interview can be a great way of getting information including the reasons for resignation and their choice to join a competitor. An employee has an implied legal duty to their employer during their employment period, which includes not to compete, not to solicit customers, not to poach employees, and a duty of confidentiality.
Employees with high levels of seniority in the business also have a duty to act in the best interests of the company. It some cases, they may even ow a fiduciary duty towards the employer which includes reporting their own misconduct.
With this in mind, if an employee were to be untruthful, this could be used as evidence against them if you ever decided to take legal action.
After an employee has joined a competitor
If an employee has left your employment to join a competitor, it might be a good idea to keep an eye on them after they have left. This way you can be sure that if they do breach any terms of their contract, you are aware and ready to act.
It is equally as important to monitor your remaining employees. If you start to receive resignations from people who are also going to join the competitor during the period stated by the ex-employees’ restrictive covenants, you may have the right to enforce a non-solicitation of employee cause.
It may also be apparent that something is wrong if a key or long-standing customer suddenly states that they are not renewing the contract with your company or that they no longer use your services.
What action to take if an employee breaches contract after they have left to join a competitor
Any form of legal action requires a good amount of evidence making the points above even more important to consider. If the situation does reach the point where you need to take action against a former employee your options could be:
Write to the employee and their new employer
By writing to your former employee, you are letting them know that you believe they are in breach of their agreement with you as well as reiterating any relevant contract terms / legal obligations, stating that legal action will be taken if they continue to act in breach.
In a similar way, you are letting their new employer know that you suspect them of inducing the breach of contract and thus also consider them to be liable to legal action for breach of post-termination restrictions.
Typical undertakings can include:
- Destroying confidential information
- Not using confidential information in the future
- Disclosing information about how confidential information has been used to date
- Not committing further unlawful acts
- Continuing to comply with the relevant restrictions
- Preserving disclosable documents
There are two types of undertaking: contractual, and to the court.
Once signatures have been attained, a contractual undertaking will act in the same way to any other contract, so if it is breached, you can sue under the premises of breach of contract.
The undertaking to court requires court proceedings in which the court examines the undertakings proposed for reasonableness and approves or disapproves. In this instance a breach would be equivalent to a breach of court order.
You may choose to consider applying for an emergency injunction. This will stop the employee working their new job, using confidential information from your business, and/or acting in a way that is directly impacting your businesses performance.
This is an expensive choice and there is no guarantee of success with the application. Ensuring that you have a convincing case including evidence of losses are essential when choosing this approach.
You are able to seek compensation for losses directly linking to the employee / employer’s breach of contract to you. If the court proceedings you undergo are successful, you may also receive some or all of the legal costs involved.
For more information or advice on this matter, please contact our Employment Solicitor Katie Bowen Nicholas.