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What steps should you take to prevent unfair competition from ex-employees?

What steps should you take to prevent unfair competition from ex-employees?
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What steps should you take to prevent unfair competition from ex-employees?
Kate Lawson - Element Law by Kate Lawson - Element Law
Director - Element Law

We have all heard concerning stories of employees leaving a business to work for a direct competitor and taking with them clients and/or colleagues. This can be devastating for a business. So, what can businesses do to prevent this situation? Is the urban legend true that post-employment restrictions in an employment contract are “not worth the paper they are written on”? Kate Lawson of Element Law guides you through how to protect your business’s interests.

The dangers to your business of leaving things to chance

Your employees are free and able to join a competitor and/or take clients and/or colleagues with them if there are no post-employment restrictions set out in their contract of employment. So, it is key to have these restrictions in a signed contract of employment to have even a fighting chance of trying to stop these events. It is also important to have a confidentiality clause in the contract, as although the common law does protect confidentiality, the extent of this protection is narrow, so contractual protection is important.

The need to be reasonable

It is not true to say that post-employment restrictions are not of any use to an employer, but they do need to be carefully considered and worded to be enforceable. This is because they must be reasonable in their scope to give protection from unfair competition, or they won’t work. They must also be appropriate to the individual employee. There is certainly not a ‘one size fits all’ possibility with post-termination restrictions. 

What does this mean in practise? Let’s take the example of a contract of a marketing manager; if your contract says that they are prevented for one year from the date they leave your employment from soliciting all your clients, this is not likely to be enforceable. But if you say the employee is prevented for six months from soliciting all clients with whom they have had material contact in the last year, then this is more likely to work.

Potential legal changes to non-compete clauses

The government is currently consulting on restricting the use of non-compete clauses – which prevent the employee from working for a competitor – in employment contracts. It is considering options which include making them unenforceable, limiting their timescale or requiring employers to pay employees for the entire period of the covenant.

Good practise steps to ensure you keep your customers’ loyalty when staff leave

If an employee has a strong relationship with a client, and has been very much their key contact, their departure can encourage your client to follow them, or at least trigger them to rethink whether you are their best-fit supplier. A key step when a significant employee leaves is therefore urgently to shore up your business’s relationship with the customer or client as soon as the employee hands in their resignation. It is important to put a new face and name into the frame quickly, even if your employee has a notice period which you are intending to, or need to, ask them to work.

You may also want to consider putting the employee on garden leave for all or the last part of their notice period, as this gives you breathing space to work on the client relationship.

MEET THE EXPERT

Kate Lawson is a specialist employment solicitor and lawyer. Her company, Element Law, offers solution-driven employment law and HR advice to employers and employees – a refreshing approach to employment law.

When it comes to employees leaving a business, there’s often some concern around whether clients and colleagues may be lost with them. By ensuring that your business always follows the correct procedures, you can make sure that the transition stays within the limits of your contract.

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