The line between legality and illegality when dealing with a former employee poaching customers or clients from your company is usually laid out within the contract of employment signed by the former employee. Beyond a contractual right, there is little a business owner can do through legal action, save for a few specific circumstances. Well-drafted contracts will protect an employer’s interests using post termination restrictive covenants. So, what are restrictive covenants, and are there any other ways to protect your business?
In this article, Real Business outlines the options company owners have to protect their business interests using post termination restrictions, including an overview of the laws governing theft from a former employer and handling sensitive information.
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How Is It Possible To Protect A Business From An Employee Poaching Their Previous Employer’s Clients?
The main way to protect yourself and your business from an ex-employee is via a restrictive covenant. Restrictive covenants are separate agreements or clauses within a contract, in this case, employment contracts, which prevent former employees from taking action that harms the business they once worked for. This covers not only poaching clients or customers, but also poaching other employees, revealing confidential or sensitive information, and deliberately damaging business-to-client relationships. Restrictive covenants are most typically found in senior employees’ contracts or contracts for key employees, but they can be seen across entire teams of staff depending on the nature of the business.
Restrictive covenants that go before a court in a legal action can be thrown out if they are seen as too broad or unfair. So, a restrictive covenant cannot be too restrictive; it must be reasonable and legitimately protect an employer’s business interests. This interpretation may end up being the court’s decision. Consequently, it’s always best to take expert legal advice from employment solicitors when drafting restrictive covenants. Ensuring you also have the best employment relationship possible with your ex-employee not only helps prevent client poaching from happening in the first place but can also support your case if it goes to court.
Your Rights As An Employer
When dealing with clients poached by ex-employees, there are two possible scenarios: the first is where you have a restrictive covenant within the former employee’s employment contract, and the second is where you don’t.
- With restrictions – Depending on the nature and value of a claim, this dictates whether an employer will have to pursue their case through the county court or the high court.
- Without restrictions – There is very little legal recourse if there is no restrictive covenant or, the one in the contract is not enforceable. Your only option that may be legally actionable is to find evidence of misconduct, such as misuse of confidential information or trade secrets.
Their Rights As An Employee
Outside of being bound by a restrictive covenant, employees’ rights end if they use proprietary client lists, confidential information, or trade secrets to solicit clients.
Your Guide To Preventing Client Poaching
As a business owner, part of your job is ensuring that your legitimate business interests are protected when you become an ex-employer. Here are some of the main measures you can take to protect your business:
1. Write A Restrictive Covenant Into Your Employment Contracts
You’ll need a specialist solicitor, an expert in employment law to draft a restrictive covenant that won’t be thrown out by a court. A court will pay particular attention to the scope of the restriction and whether the clause is operable for a specific period.
As a general rule, a restrictive covenant should include the following details:
- Type – Restrictive covenants come in different types, such as non-solicitation, non-dealing, etc
- Time limit – Covenants tend not to last forever; typically, they last between 6 to 12 months. The specific period must be reasonable and proportionate.
- Geographical restrictions – Delineate an area where the covenant is valid.
- Protection of key clients – Clauses contain a prohibition on key clients from being in contact with ex-employees after they have left the business.
2. Get A Signed Copy Of The Contract Of Employment
Whilst you will always have a copy of employment contracts, you will not necessarily have a signed copy. A signed copy provides proof that the ex-employee read and acknowledged the terms, and in the event of a covenant being broken, it is an admission that they went against the contract that they signed.
3. Remind Your Employee When They Hand In Their Notice
When your employee leaves or begins their notice period, have a friendly discussion about their plans. This is an opportunity to remind them of restrictive covenants enforceable in the contract they signed when they started their employment. Even though you may have the right to instigate legal action if restrictive covenants are breached, this may still cause damage to your company that isn’t easily erased.
4. Enforce Those Covenants In A Court Of Law
After your ex-employee leaves, if you receive information suggesting they’re in breach of contract, you can enforce the covenants through the courts. Normally, the specialist who wrote the contract will end up being the party who enforces any restrictive covenants. It can be a time-consuming process and expensive in terms of legal fees. However, it may be vital to protect your business interests and your company from losses
What Are The Alternatives To A Restrictive Covenant?
Not all employers see restrictive covenants as a positive. Depending on the size of your business, and the nature of the case, it can cost thousands in legal fees and court costs to pursue an ex-employee and enforce restrictive covenants. If you’re hiring, you may not want to be the new employer who brings in senior employees bound by these clauses as it could affect your business operation.
So, what are the alternatives to restrictive covenants?
Other Agreements
There are potentially different agreements as an alternative to restrictive covenants.
- Non-Solicitation Agreements – Non-solicitation agreements do the same thing as covenants, only they target and protect the relationship between the company and the customer. These can be harder to enforce, and they don’t restrict customers from approaching an ex-employee.
- Confidentiality Agreements – Confidentiality agreements protect the trade secrets of the company, but their use is conditional; they are suited to some industries more than others.
- Non-Dealing Clauses – These provide extensive protections for your business, stopping former employees from dealing with your customers altogether. However, history dictates that in many cases, the court has found them either too broad or just unreasonable.
- Garden Leave – Garden (gardening) leave stops competitors from immediately nabbing your employees by restricting those employees from working. While this may stop the transition of your customers to another business, it’s only a temporary solution and an expensive one, since you still have to pay their salary while they are on leave.
Customer Loyalty Scheme
A senior member of staff leaving and taking key clients with them is an unpalatable truth for many businesses. However, there are some solutions which you can use during your employee’s notice period. Switch your focus toward your existing customers and sweeten the pot with a loyalty scheme, such as discounted rates, reward schemes and free services to encourage them to stay loyal to your business.
Conclusion
Restrictive covenants are a strong way to discourage your ex-employees from poaching your clients and to prevent contact with former staff members once they have left the organisation. However, enforceability is directly correlated with a potential loss of revenue.
If you’ve missed your chance to add restrictive covenants to the employment contract, change that for new employees immediately and look at other options for staff members that have already left. One way to manage this persistent issue is to focus on growing your business without reliance on any one key client and looking at ways to shore up client loyalty to prevent poaching from happening in the first place.
Whichever approach you take, there’s no denying that an ex-employee approaching your clients is disrespectful and upsetting. However, if you respond appropriately, you can make sure your business doesn’t suffer any losses or damage as a result.
