When you lose members of your team, it's never nice. But when they join a competitor company, it's that much worse.
So imagine how an employer might feel if a whole department ups and leaves to work for a competing business. Willis v Jardine Lloyd Thompson is just this example, where Willis saw first key employees from one division leave, then a total of 30 people in the space of a month decide to work for competitor Jardine Lloyd Thompson.
Willis brought a case to the High Court in the hope that a 'springboard injunction' could be passed to stop more employees leaving, and luckily they were successful. But for a small employer taking a case to court like this is not always something they can afford - especially if they aren't sure to win. So what, if you're a small business, what can you do to stop this from happening?
Employment contracts are a good place to start. And if you don’t have these for your employees, you should really think about drafting one. Many employers find themselves cobbling together terms of employment through emails and other conversations, which is in fact a breach of employment law.
As a minimum you should set out in writing:
- The names of both employer & employee
- The date the employment started
- Job location
- Pay and when it’s due, e.g. monthly or weekly etc.
- Hours of work
- Holiday entitlement
- Description of the role and its title
- Details of any agreements that directly affect the conditions of employment
How Restrictive Covenants can help
What are Restrictive Covenants? They're a key clause that can be added to employment contracts to help you protect against just the kind of situation that is seen above. Essentially, these clauses restrict your employees from doing unreasonable things when they leave your business.
Restrictive Covenants can cover anything from a staff member joining a competitor or even starting up a competing company within a certain time frame after leaving your business. The restriction could be within a certain geographical area, to prevent ex-members of staff 'poaching' your customers, or you can restrict them from joining competitors within a certain industry. You can even specify that employees are not able to approach customers for work for a certain time period following their departure.
However, Restrictive Covenants aren't a golden ticket to prevent competition. These clauses are often challenged and hard to enforce, so what's the best way to use them in your business?
Using Restrictive Covenants in your business
If you want to stay within the law, you can't tie someone down so much that they aren't able to earn a living at all for a given period after leaving your company, so take this into account when drafting terms for your Restrictive Covenants. It’s important to think about what is needed specifically for your Company, as one size doesn’t fit all here.
Often, companies include a six month 'cooling off' period when employees can't work in the same industry. It might not seem like very long, but it's valuable time for you to cement business relationships should you feel there's any risk from your departing staff member, and is more likely to be upheld in court. Although, depending on the seniority of the staff or the scope of your business, this could potentially be extended to 12 months.
If you haven't added something like this to your contracts, it might be worth doing should you feel at risk. However, when updating the contract, you will need to consult your existing employees; you may need to provide additional benefits in return for these restrictions - otherwise they might not agree to the change and you wouldn’t be able to enforce the new clause.
Once you have Restrictive Covenants in place, if an ex- employee breaches them, like any other form of legal action the first thing to do is write to them. Tell them what you think they are doing wrong (quote the contract), then ask them to stop and advise them that they may face legal action. But don’t forget you can also write to the new employer (if there is one) and advise them of the restrictions, and that they too could face legal action. This can often be enough of a deterrent.
Finally, as mentioned before, Restrictive Covenants aren't some sort of golden ticket to keeping staff from working for competitors. They can still be expensive to fight in court, however they're cheaper than losing loads of staff like Willis, and are the best preventative measure available to stop ex-employees behaving in a way that could damage your business.
By Kirsty Senior, Co-Founder and Director of citrusHR