As a small business owner, it is important to have a plan in place for the possibility of when a former employee approaches your customers.
Here, Alan Price, head of employment law at Peninsula HR, looks at how implementing a restrictive covenant into an employee contract can help prevent the future loss of earnings for an employer, and how to begin the legal process against a former worker.
Employees leaving the business is often a difficult period for a small business owner; not only do they have to train a new person in that role but there is always the worry that the ex-employee will go to work for a competitor and start approaching your customers or staff.
The worry is even greater where the leaving employee is someone senior in the business, or an individual with access to confidential data such as potential customer lists. Most employers will believe there is nothing they can do in this scenario but they can use the contract of employment as a tool to protect their interests.
Restrictive covenants are contractual clauses which restrict the activity of employees once they have left the business. Typical clauses include; non-solicitation, where the former employee is prevented from poaching existing or prospective customers; non-dealing, which prevents the former employee from dealing with former customers, and confidentiality.
When a former employee approaches your customers, courts will use restrictive covenants to protect employers? legitimate business interests. This means that covenants will only be enforced if they are reasonable in the circumstances. The requirement for reasonableness applies to the period of time they remain enforceable for once the employee has left the business, and also for any geographical or business area the employer is trying to restrict activity in.
Employers need to ensure they are receiving a signed copy of the contract, containing the restrictive covenants, back from the employee so they can prove the employee was aware of the restrictions on their post-employment activity.
When the employer has notice that the employee is leaving the business, they should write to the employee reminding them that restrictive covenants will apply once they leave and that the business intends to enforce these if they are breached. When the employer receives knowledge that the former employee is approaching customers, it is important at this point to start taking action. Leaving the issue could cause a loss to the business and make any later action less effective.
Restrictive covenants are only enforceable through court orders. Unfortunately, this can be a costly and time-consuming process to start but, on balance, the costs of enforcing the covenant may be less than the amount the ex-employee could cost the business if they were to poach old and new customers away. This balance becomes more advantageous the more senior the ex-employee was.
When a former employee approaches your customers
When a former employee approaches your customers, the first order that employers can apply for is an interim injunction. This stops the ex-employee continuing with their actions pending a full hearing of the issue. Taking this initial step may be sufficient to ensure compliance with covenants as the ex-employee realises the employer will be taking action to enforce these.
If the issue does proceed to a full hearing, the court will examine the reasonableness of the restrictions and the business interests the employer is trying to protect before enforcing the restriction.
The enforceability of restrictive covenants is not always a definite outcome, even though theyve been included in signed contracts. It is important that restrictive covenants are well-drafted, reasonable and explicit as to what types of activities they want to restrict to ensure they can be relied on when a former employee approaches your customers
Alan Price is head of employment law and HR at Peninsula HR.Read on to find out ten ways to guarantee that amazing first hire.