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Can I use restrictive covenants to stop staff working for competitors?
Post-termination obligations (restrictive covenants) within a contract of employment whereby the employee agrees not to do certain things after they leave the company are typical of employers with wide competition. They are usually difficult to enforce unless it can be proved to be reasonable and written to genuinely protect legitimate business interests. Therefore, the extent of the restrictions must be relative to the employees’ position within the business.
A restrictive covenant should include specific restrictions. These specific restrictions are tailored to prevent your employee from using company information to support a competitor or alternatively aid them in setting up indirect competition. The majority of these Restrictive Covenants will have a time-limit applied. Any longer than a year could be deemed as unreasonable.
There are generally four types of restriction. These obligations are set out in a restrictive covenant.
This seeks to prevent an ex-employee from directly competing or working for a competitor, normally within a specific geographical area and for a set period of time, usually six to twelve months.
This seeks to prevent an ex-employee from approaching existing customers for a set period of time, usually six to twelve months.
3. Non-poaching of fellow work colleagues
This seeks to prevent an ex-employee from recruiting former work colleagues for their new employer for a set period of time, usually six to twelve months.
4. A restriction on the use of confidential company information
This seeks to prohibit the use of any confidential information acquired by the employee during their employment.
Restrictive covenants can work to protect an employer’s business. They can provide leverage or influence even if an employer would rather not pursue the matter to a full court hearing or seek an application for an injunction.
On the one hand, employers wish to protect their business interests, but on the other hand, an employee has a right to earn a living, so any restrictions have to be seen as reasonable to prevent any suggestions of a restraint of trade.
A Garden Leave clause may be worth including within your documentation if you are concerned about Restrictive Covenants. This allows employers to tell an employee that they are required to spend all or part of their notice period at home and during this time they are unable to take up other employment preventing them from working for a competitor. However, during the period of garden leave you will be required to pay them their usual salary and benefits.
Is this all legal?
The covenant needs to be reasonable to stand a chance of being enforceable and should be outlined to a potential new employee prior to commencement rather than being suddenly introduced after commencement of employment.
An employee should as well be reminded of the restrictions in place prior to leaving at their exit interview. It is a fine balance but a carefully worded document that is not unreasonable can be worth the paper that it is written on.