Whilst these clauses take various forms, their
purpose is to protect and safeguard the legitimate commercial interest of the
business with a significant emphasis on the client base and preventing former
employees from doing untold damage to a business by poaching customers, setting
up in competition and recruiting former work colleagues.
Non-compete clauses prevent a former employee from competing with their previous employer, non-poaching clauses restrain a former employee from hiring former colleagues and non-solicitation clauses stop former employees from taking steps to encourage clients away from their former employer.
Whilst that all sounds quite straight forward, most
such clauses then go into further detail in terms of the distance or radius in
which you are prevented from setting up in competition or time scales within
which you can’t approach clients or former colleagues.
At this point, the issue becomes less clear cut
because whilst you can make the clauses so onerous that the person can’t do
anything, the possibility is that in doing so, the clauses become so
unreasonable that they become unenforceable.
It is common practice when a person leaves a
business and the Company acknowledges receipt of the resignation that they will
be politely reminded about their restrictive covenants and of the possible
consequences if they should step out of line…..and often CEOs and MDs will say
– at least that will send a “warning shot across the bows”.
Whilst, the Courts are not averse to enforcing
well-drafted and reasonable restrictive covenant clauses against former
employees, the emphasis is on the careful wording and the interpretation of the
word “reasonable”. On the one hand this destroys the myth that such clauses are
not worth the paper they are written on but the legal costs of bringing such
actions can be prohibitive – begging the question – what price do you put on
protecting your business?
Some say that by making such clauses as robust and
restrictive as possible, this will act as a deterrent. Dare I suggest that it
is not uncommon for employees to have such clauses in their contracts and
because of their legal speak wording, they don’t actually understand what they
are prevented from doing. Sales people tend to focus more on the commission
clause than their restrictive covenants! Maybe that’s because sales people are
not renowned for doing detail?
The business should be clear about what it is
trying to protect – client listings, technical expertise, system or process
design……Business is about relationship building – we build relationships with
our clients because if we don’ they won’t do business with us and we build
relationships with work colleagues. Such relationships may stray outside work
and you can’t prevent a former employee meeting with an ex-client for a coffee.
However, when that former employee tries to entice the client away from
one Company and transfer their business to another Company, the restrictive
covenants will cut in.
The employment contract should be drafted to include clauses which include restrictive covenants designed to protect legitimate business interests and, therefore, should be reasonable in all senses of the word.
Article by Adrian Berwick
Adrian Berwick provides HR support for business and
if you want any support on issues relating to restrictive covenants, contact
Adrian on 07885 714771 or e-mail info@abcommercialhrsolutions.com
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