Matthew Howse, Partner – Dispute Resolution and Litigation, Eversheds Sutherland
A new year brings the opportunity to take stock and make plans for the year ahead. For a person looking at the next 12 months, a new job might be part of those considerations.
Over the last number of years, the labour market has grown much more competitive for employers, thanks in large part to the pandemic and wider changing trends in the world of work. While focus has often been on what employers can do to attract talent and make their organisation stand out in a crowded market, serious consideration should also be given to how you can protect your business and its operations when employees move elsewhere.
In today’s war on talent, restrictive covenants can be a vital tool in protecting your business’s information, technology, and even client and customer base. For competitors, poaching an employee with a wealth of insight, experience, and knowledge can be one of the best investments they make. By putting in place strong and enforceable restrictive covenants, employers can protect their organisations and ensure they remain competitive in their sector.
Restrictive covenants can take a number of different forms, such as non-compete, non-solicitation, non-dealing, and non-poaching. The aim of a restrictive covenant is to protect your legitimate business interests and therefore should be drafted with care and consideration to ensure they are proportionate and effective. It is important that companies do not impose, for example, a six-month restrictive period when two months would have sufficed, as they risk a court striking down the restrictive clause in its entirety as unreasonable.
Restrictive covenants can give your organisation the breathing space to find new talent and ensure that the departing employee does not give their new employer an unfair competitive edge. However, there are a number of key factors to keep in mind when using these clauses. In order to ensure restrictive covenants are enforceable, there must be a clear legitimate interest which the business is seeking to protect. Organisations should actively consider why they are using restrictive covenants – does the employee work in sales and there is a risk of them moving to a direct competitor? Will the employee have access to sensitive business information which could cause damage to the business if shared with competitors?
Companies must be able to articulate what it is they are trying to protect and why. If they are not able to do this, then they will not be able to enforce the covenants against the departing employee, leaving your interests potentially at risk.
Once you have established there is a legitimate interest to protect, the steps you take to protect that interest must only go as far as is reasonable to protect that interest. This is a careful balancing exercise between protecting a company’s legitimate interests and curtailing an individual’s ability to work. If a business-critical person resigns, or there is an indication they may resign and they perform a role where legitimate business interests may be at risk, an employer should take steps in readiness. You can do this by placing the employee on garden leave for the duration of their notice period, for example. If you need immediate relief, however, you must move quickly and seek legal advice on the options available, whilst gathering evidence of the alleged breaches and any damages which may have been suffered.
As with any disputes, keeping all parties aware of their obligations is to be recommended at all times. Reminding departing employees of their obligations immediately and regularly throughout the process can help avoid many headaches. However, ensuring your contracts have strong and robust mechanisms like restrictive covenants can shield your organisation or company when there are staff changes.
