Is your business protected when an employee moves on?
It is often said that "long gone are the days when a job was for life".
This phrase is often heard in the context of an employee's job security and redundancy. However, it is important for employers to be aware that the trend has potential negative implications for their business, particularly in today's competitive marketplace.
When a senior employee leaves, a business can be vulnerable to competition from the ex-employee, who will often have developed strong relationships with customers and suppliers and have acquired a significant amount of "confidential information" during their employment. Team moves are becoming increasingly common, and businesses may be vulnerable to the poaching of key employees.
What can an employer do to protect against these risks?
The courts will allow an employer to protect its legitimate business interests, provided the restrictions are no more restrictive than is reasonably necessary.
However, it has long been recognised that our economy has developed upon the basic principle of freedom to work and trade. In keeping with this, the law contains a general presumption that restrictions in restraint of trade are unlawful. This means that an employer cannot merely seek to shield itself from competition, and a restriction will not usually be enforced if it would prevent an employee from earning a living.
More recently, the courts have also recognised that in certain skilled professions a person has a right to work, so that their skills do not become out of date as a result of excessive post termination restrictions or during long periods of "garden leave".
The courts will therefore interpret restrictions strictly, and will construe any ambiguity in favour of the employee.
In order to protect a business, when drafting restrictions, an employer will therefore have to consider the following factors:
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What is the legitimate business interest requiring protection?
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How can that protection be achieved?
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Is the proposed restriction no more restrictive than is reasonably necessary in the circumstances?
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Will the balance of convenience favour the employer? (i.e. when the interests of the employee and employer are compared, would non-enforcement of the restriction be more inconvenient to the employer than enforcement would be to the employee?)
This means that an employer should define the business interest which it seeks to protect when drafting restrictions and should avoid using standard restrictions for all of its employees, irrespective of their position.
It is much better for restrictions to be drafted to reflect the employee's position within the business and the particular risks that a business would face if that employee was to leave the business.
In many cases, it will be necessary to review and amend restrictions on a regular basis to ensure that they remain relevant. This may mean reviewing restrictions:
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whenever an employee is promoted;
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whenever there is a significant change in the direction of the business;
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whenever an employee's job role changes (even if not expressly); or
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whenever the project that an employee is working on changes.
In many cases, particularly with senior employees, it will be prudent to review restrictions on an annual basis, e.g. at the same time salary is reviewed each year.
Conclusion
Most people do not like to think about the end of an employment relationship before it has even started, or while it is ongoing. However, if the employee is worth employing, a competitor might share the same view.
It is important for businesses to appreciate the potential damage that might be suffered when an employee leaves the business, and for restrictions to be kept under review to ensure that the restrictions remain relevant. A naive employer will find itself vulnerable if the employee decides to leave.
There is no guarantee that a court will enforce any restrictions. However, by ensuring they are appropriate to the particular risk that a business will face if an employee leaves, a business will be proactively managing that risk and will give itself a much better chance of obtaining protection at the end of an employment relationship.
further information please contact: Alison Gow