Non Compete and Team Transfers
Post termination restrictions
An employment contract for a key employee may contain a series of post termination restrictions. These often set out what the employee cannot do for a specified duration after the employment has ended. Typical clauses will seek to (i) prevent a key employee working for a competitor; (ii) solicit a client or potential client; (iii) poach other key employees; or (iv) interfere with supplier relationships.
The purpose of a post termination restriction is to protect a legitimate business interest such as confidential information or a client relationship but cannot go so far as to amount to a restraint of trade.
Whether a post termination restriction is enforceable often depends upon how reasonably it is drafted. For example, most businesses would not require a restriction to last longer than it would take to employ a new employee into the role of the departed employee and to establish a new client relationship. The shorter the restriction the more likely it is to be held to be enforceable. Six months to one year are often found to be enforceable for senior management positions. Also, a non-compete clause should be limited to the geographical area of the business. If a hairdressing business located in Brighton had an area restriction covering the South East of England, it is likely to be found to be unenforceable. Legal advice should be sought to determine whether a particular restriction is likely to be enforceable because this will often depend upon the circumstances and a range of factors.
Breaches during employment
Employees considering setting up their own business in competition with their employer or employees considering moving to a competitor should seek specific legal advice because any steps takenduringthe employment (for example, registering a limited company or discussions between employees during a potential team move) may be construed by the employer as a breach of the employment contract. This might be especially important for senior managers or directors when they owe a fiduciary duty to the employer in addition to any specific contractual clause prohibiting working in competition during the employment relationship.
Evidence of a breach or a potential breach
Breaches of the existing contract of employment may be easier for an employer to enforce than any post termination restriction and evidence of a breach can be discovered from company mobile phones, photocopiers, information on social media websites, other employees whistle-blowing, email trails, waste bins, laptops or iPads, sending information to a personal email account, accessing company server information from home, plugging in a memory stick into your work computer, uploading or downloading company information by whatever means, taking photos of confidential information or customer lists on a phone or camera, faxes, scanning documents, dictation, making a hand written note etc.
Once an employer discovers a potential breach of contract (which may require no more evidence than an employee blowing the whistle), they must act quickly and openly in pursuing any application against an ex employee for breach of contract. These claims are heard in the civil courts not the employment tribunals. It would be usual for the employer to write a letter to the ex employee requiring an undertaking that they have not committed a breach of contract or an undertaking not to breach a post termination restriction or an undertaking to return all company property including any confidential information.
If the undertaking is not forthcoming from the ex employee, then the employer could make an interim application to the courts (either a County Court or the High Court) for an injunction. An injunction is the interim remedy prior to the claim for breach of contract being heard in the courts in the usual way. This is a claim for all the losses that flow from the breach of contract.
The application for an injunction is normally made with advanced notice being provided to the ex employee but in cases where time is of the essence for the employer, there is no obligation to provide notice. The application at this stage will be for an injunction, which will prevent the ex employee from breaching the post termination restriction. A breach of a court injunction is liable to be punishable by contempt of court proceedings (imprisonment and/or a heavy fine) so it is in the interest of the ex employee to ensure they are fully represented at any court hearing to try and prevent the injunction from being granted. As injunction proceedings are expensive (the losing party may be required to pay the legal fees of the winning party in addition to their own), most disputes are settled without the need to go to court as the risk of losing vis a vis the financial costs can be serious.
Even if the contract of employment contains no post termination restrictions, injunctions can still be granted (springboard injunctions) where there has been a breach of the contract during the employment for example by copying confidential information such as client lists for use in a competitor business or mass poaching of employees/clients or to prevent ex employees dealing with clients illicitly solicited.
If you would like to discuss your own circumstances in confidence with an experienced solicitor, or would like a more informal discussion about how we might be able to help you, please call us on 020 7426 4909 or email us at [email protected]ld.com.