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Cutting Through Complexity

You Can't Do That

14th November 2013

One of your senior employees has resigned and they’ve moved to a competitor. You find out that they’ve started contacting your clients and tried to persuade some of their former colleagues to join them at their new employer. What can you do about?

You go to their personnel file and get out their contract of employment. You’re looking to find out if they signed the most recent version of your contract of employment which contains restrictions on their conduct after termination. They did, so you ask your solicitor to write a letter to them, reminding them of their restrictions and that you will take legal action against them unless they cease breaching them. It works and no legal action is required.

Many employees try to argue that their former employer can’t stop them “earning a living” and that any restrictions will be unenforceable. But that’s not right. Provided that the restrictions go no further in extent or duration than to protect the employer’s “legitimate business interests”, you will be able to enforce them, potentially with an injunction against the former employee and a claim for damages if they do not accept that they are bound by them.

Any restrictions should be very carefully worded and tailored to the role which the employee is to carry out. They should normally only be prevented from, say, soliciting or dealing with clients or customers (or carefully defined prospective customers) with whom they had personal dealings within a prescribed period prior to the termination of their employment. The same goes for restrictions relating to the poaching of colleagues. Other restrictions could include not setting up in competition, being employed directly by a customer or interfering with relationships with suppliers.

Top tip this week is to make any job offer or promotion conditional upon the employee signing and returning a contract of employment containing tailored post-termination restrictions. If you have a signed contract with up-to-date restrictions drafted by a solicitor, it will be far more likely that the employee will be bound by them and not breach them in the first place. A little investment at the start of the relationship provides dividends at the end.

However, do remember that all your good work can be undone if you act in breach of an employee’s contract of employment, such as by constructively dismissing them or by paying them in lieu of notice when you have no contractual right to do so. In these circumstances, the employee will no longer by bound by any restrictions in their contract.

The contents of this update are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this update. © Mundays LLP 2013.

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