This information or these clients could be vital to your business. So how can you prevent this from happening?
An employer can protect the use of information or its clients by the use of terms known as restrictive covenants in the contract of employment.
What is a restrictive covenant?
Restrictive covenant is a term which prohibits the ex-employee from competing with the business or using sensitive information after his or her employment has ended. However, unfortunately it is not quite as simple as including a term in the contract which states simply “you cannot compete with us after your employment has ended.”
The starting point with restrictive covenants in an employment contract is that they are void on the grounds of public policy and because they would be an unfair restraint of trade. However a restrictive covenant can be enforced if the covenant is there to protect the legitimate business interests of the employer and it goes no further than is reasonably necessary to protect those interests.
So for a restrictive covenant to be enforced it must not be drafted too widely. It will be up to employer that the covenant is justified and sufficiently narrow.
By way of example, let's say you own a hairdressers in Upminster and one of your staff is about to leave. If the contract of employment has a clause which tries to prevent the employee from establishing a competing business anywhere in England for 20 years after the termination of employment then this clause would be deemed void and you would not be able to stop the employee setting up a shop a few doors down the road and approaching your existing customers. However, if the covenant was drafted to prevent the employee setting up a shop within 5 miles of Upminster and for 6 months after her employment ended, then this covenant could be enforced.
However, one-size does not fit all with restrictive covenants and they needed to be drafted with the specific employee in mind – for instance, a UK wide restriction could be enforced against a national sales director for a multinational company, but it would not for a plumber who works for a small builder in Hornchurch.
How to include a restrictive covenant in your contracts
If you are concerned about the effect on your business should an employee leave then you should come and speak to one of our experienced solicitors. Our employment law specialists can ensure that the restrictive covenants are drafted in such a way that they can be enforced.
This article was written by Damian Pitts, Associate Solicitor in the Dispute Resolution Department at Pinney Talfourd Solicitors. This article is only intended to provide a general summary and does not constitute legal advice. Specific legal advice should be taken on each individual matter. This article is based on the law as at July 2015.