Restricting what your employees can do if they leave – and making sure it’s enforceable
Employers can stop employees taking confidential information, stealing customers or setting up in competition when they leave to a certain extent, but there are limits – check out what you can and can’t do to protect your business.
If you’re taking on an employee who will be important to your business and you don’t want them to be able to:
- take confidential information (about customers, suppliers, your products or services, pricing, etc) with them;
- try and steal your customers or other employees; and/or
- set up a competing business
when they leave, it’s best to get them to sign written terms agreeing the restrictions (lawyers call them ‘restrictive covenants’) you want, when you first take them on. Don’t put it off for fear of putting them off joining, as it’s much harder to impose them later. And don’t think your business is too small for these issues to be a danger, as they can affect businesses of all sizes and types.
You will need legal advice on how far you can go in your restrictions, because the court won’t let you just impose anything you want on ex-employees. The law says these restrictions must:
- only protect what the courts call a ‘legitimate interest’ (such as your trade secrets, your customer base and your workforce); and
- only go as far as reasonably necessary to protect that interest
If they go beyond that, they are void and can’t be legally enforced against the employee.
If you want to impose a restriction you must first identify which interests you want to protect, and then decide whether the restriction is reasonably necessary to protect that interest.
A restriction is more likely to be reasonable if it is tailored:
- to the particular employee’s role and responsibilities – so don’t use a standard set of restrictions for all employees. For example, a senior employee with access to more confidential information and to customers should have different restrictions from a junior with no access to confidential information, and doing non-customer facing work. Also remember that, if you promote an employee it’s a good idea to review their restrictions to make sure they’ve keep pace with the employee’s new responsibilities;
- to the particular interest you are protecting. For example, a restriction stopping an employee from competing with you when they leave is usually limited by reference to a time period (often 12 months, but it depends – in one case involving a well-known news broadcaster the court upheld a three month period as reasonable. ) and a geographical area. A restriction on trying to steal customers is often limited to customers the employee dealt with when employed by you, not all your customers.
If a court decides part of a restriction is reasonable, but another part is not, you can argue that the reasonable part is still enforceable, provided it can stand alone. A good lawyer will draft each part so it stands alone even if a court decides other parts are unenforceable.
In contentious business, a solicitor may not calculate fees or other charges as a percentage or proportion of any award or settlement.