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.
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.
It is not uncommon in some situations, often
related to signing a settlement agreement, where the business will agree to
release the employee from restrictive covenants. I recall a situation many
years ago when drafting a settlement agreement, I asked the CEO if he was happy
to release the employee from his restrictive covenants to which he replied
“Adrian…..the guy was so ***** useless, the competitors are welcome to him”.
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
