Understanding the value of restrictive covenants and how they can be used to their advantage is essential for all business owners. Restrictive covenants, when used strategically, can help protect your employees, clients and candidates.
Do restrictive covenants work?
It is a popular myth that restrictive covenants do not work and that you cannot prevent someone from earning a livelihood. That is just not true.
If carefully drafted restrictive covenants can last up to 12 months following the termination of employment.
They can be used to prevent former employees from being employed by a competitor in a similar role, prevent them from dealing or soliciting your clients/candidates or potential clients and candidates, or soliciting colleagues to join their new firm.
Protecting business value in recruitment
Restrictive covenants are vital to protecting business value in recruitment. Recruitment is a people business. The value of that business depends on the relationships that your people develop with your candidates, potential candidates, third party referrers and clients.
If you do not have effective restrictive covenants in place that protect the value of your business in the event that your key people leave, then the value that has been built up will simply walk out of the door with them.
If covenants are in place, then business value is protected as your former employees cannot simply take the benefit of those relationships and immediately use them for the benefit of your competitors. It provides you with a breathing space to rebuild those relationships with a new employee.
Drafting a restrictive covenant
In order for a restrictive covenant to be enforceable, it must do no more than what is reasonably necessary to protect the former employer’s legitimate business interests.
If they go further than this then the Court will not enforce them and they are useless.
You need to take time and care in drafting the covenants at the outset to ensure that they are enforceable.
Investigating the suspected breach of a restrictive covenant
Before taking any enforcement action properly investigate what has happened. If an employee has left and is breaching their covenants, it is most likely that they are in breach of other terms of their contract. Most will also have stolen confidential information to help them compete. Is the new employer involved too? Can you take action against them?
Until you know the scale of the issues your business is facing you cannot know how best to deal with the problem. The law can provide powerful emergency remedies, but if you act in haste these can be lost.
Acting on the breach of a restrictive covenant
Options range from simply writing a letter to immediately issuing court proceedings seeking damages and emergency injunctions to prevent the former employee breaching their covenants until Trial. In addition, search orders allow us to search former employee’s houses looking for evidence of wrong doing.
You can only decide what level of response is necessary when you understand the level of threat to the business.