Damage limitation when key staff leave - restrictive covenants
Your key salesperson just handed in their notice. He’s taking your most profitable clients. He knows your business inside-out. Now he’s going to work for your biggest competitor just around the corner, this is not a good day for your business. Then it gets worse! In the row you just had in the corridor, he said that the terms you placed in his contract to stop him doing this are completely unenforceable. Gulp! Is there anything you can do? Can he really walk out the door taking your hard won business with him?
Limiting the damage
In every business, there comes a time when a critical employee, who may have forged solid relationship with clients and suppliers and has an in depth knowledge of your business, decides to leave. Inevitably, the employee will remain working in the same sector and probably the same area. Some clients may wish to follow him with the end result that you are now facing more competition. Situations like this are inevitable but you can limit the damage by using ‘restrictive covenants’ in employees contracts. The question is, how far can you go?
These covenants can protect your company’s key clients, sales and revenue by restricting an employee’s activities after they have left your employment. Broadly speaking, restrictive covenants may stop an employee from:
• working for a competitor
• working in the same geographical area as your business
• directly approaching clients
• poaching other members of staff to work for them
The problem is always that an ex-employee could claim that these covenants unreasonably restrict his ability to earn a living. They must therefore reflect a balance between the company’s right to protect their legitimate business interests and the individual’s right to work with the skills he has acquired. It is very common for such covenants to be held invalid and unenforceable, simply due to poor drafting and lack of consideration about what the real business interest is.
What to do now
Of course the way to remove as much risk as possible is to get the right legal advice on how far you can go. Don’t let poor drafting allow customers, business and money to follow your employee out the door.