Thinking of Hiring? Think Employee Restrictive Covenants

The Office for National Statistics stated that employment increased by 193,000 in the last quarter of 2013. Meanwhile unemployment is also lower. This is great news for the economy and a positive sign for employers and employees.

As every seasoned politician is keen to remind us though, there is some way to go before we can be comfortable that we are in recovery mode. Although a handful of sectors have already started recruiting new employees, many businesses are a step away from taking the plunge and increasing their overheads just yet.

Employers waiting for the upturn to gather pace before recruiting should take this opportunity to review the terms of their employment contracts in preparation for new hires.

Surviving the Hiring and Firing

Few businesses that have survived over the last few years will have avoided shedding employees but, in a contracting economy, losing them to competitors was often low on the list of concerns. However, even in a shrinking economy, protecting your interests through restricting the activities of former employees has still been important. Losing skills is problematic but losing market share to competitors as trade secrets or client lists walked out of the door could have been fatal with less business to go around.

As the economy recovers, employee turnover is likely to accelerate as employees feel more confident about moving and less concerned about job security. In this environment it will become even more important that businesses protect themselves with appropriate restrictive covenants. This applies to surviving businesses and more particularly new businesses that have emerged from the rubble of recession who are likely to have less experience of these issues.

General Rules for Restrictive Covenants

Most modern businesses are highly data driven and that data has become easily transferable. Although some of that information is protected by implied covenants, employers are ill advised to rely on these alone.

Blanket restrictive covenants may appear the best way to combat this issue but these are usually unenforceable. Better then to craft covenants so that they are no wider than they need to be to protect the legitimate interests of the business – this may mean different degrees of restriction for different roles regarding: activities, geographical area or information the employee has access to.

There are several categories of restrictive covenants that need to be considered:

i) Non-solicitation – prevent former employees soliciting customers.

ii) Non-dealing – prevent former employees dealing with customers.

iii) Non-compete – prevent former employees from working for a competitor or setting up in competition.

iv) Non-poaching – prevent former employees from poaching former colleagues.

v) Confidentiality – prevent former employees from disclosing certain confidential information.

Additional measures such as garden leave may also be appropriate.

Comment

Employee restrictive covenants must be drafted carefully to avoid being invalid. For specialist employment law advice contact Aneil Balgobin today via e-mail ABalgobin@rollingsons.co.uk or by telephone on 0207 611 4848.