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TEAM Blog

Restrictive Covenants

Attending a recent TEAM meeting the subject of restrictive covenants reared its head, as it tends to do every now and again.

The issue is thorny and one that most people tend not to fully consider and prepare for; be they an employer losing clients and contractors through an ex-employee, an employer who suspects that their new employee is targeting their old clients or where you have an agreement in place with your end client not to target their employees.

I should probably state here that I am no lawyer and nor do I have any expertise in law (outside of the minor component of a Degree scraped from University nearly 15 years ago!) and what follows should be considered as the musings of a person interested in the subject only.  For the real advice, TEAM have a selection of excellent legal experts at the ready to guide you properly.

First and foremost a working relationship is undoubtedly founded in trust - if you are a business owner who cannot trust your staff then you are in for one seriously stressful time running your company.  This is not to say that you should not include some basic clauses within your contract of employment that clarify what is expected of your employees if they should leave you and what the consequences will be if they do breach the restrictions.  

Whilst there can be a number of restrictions we will look at the contacting of clients and contractors.  These restrictions will of course be weighed in favour of the employer and will cover the financial loss suffered by them if their ex-employee goes ‘rogue’.

If you suspect that an ex-employee is poaching your clients then your first point of call would be to your solicitor (or Insurance Broker, if you have a Management Liability or Legal Expenses policy that includes cover for pursuit of restrictive covenant). You should certainly refrain from contacting the individual directly without seeking qualified advice as this may affect your chances of successfully bringing an action under the clause.

As an employer of a new consultant it would generally be considered good practice to request that said new employee provide details of any restrictive covenants in their previous contract before they start working for you, so that you will be fully aware of what the conditions are under their previous employment agreement.  It should also be considered good practice to have a process in place that clearly defines how you expect your new employee to conduct themselves with respect to their past client list.

Procedures such as the above should be considered standard good practice because you absolutely do not want to be seen to induce your employees to breach their covenants and the best way to do this is have this documented.

If you are an employer who suspects that your new employee is targeting their old clients you would probably, therefore, wish to raise your concerns with them, document that they have been referred to the procedures and request that they adhere to your processes.  A call to your legal advisor wouldn’t go amiss here either.  

As an experienced broker to the recruitment industry we have also seen a rise in restrictive covenants being inserted into the contracts between the end client and the recruiter - specifically those governing the non-solicitation of the end client’s personnel.

Generally these agreements seek to restrict the recruiter from actively targeting the employees of the business they are placing into.

We would generally expect to see a caveat within such a restriction that any employee of the end client who responds to a general advertisement by the recruiter would be outside of the restriction.  Obviously if any such restriction applies to any agreement you have with your end clients then these should be communicated to your employees to ensure that they do not accidentally breach the clause.

Again, best practice would be to have documented and clear procedures in place to manage any employee who is breaching this clause, including within your disciplinary procedures.

Finally, it should be further noted that non-solicitation agreements will generally have an amount that the recruiter will be liable to pay the end client in the event of a breach of the agreement.  Such an amount would be considered as ‘liquidated damages’ under the Professional Indemnity contract of insurance and therefore would be excluded under the policy, possibly leaving the business open to sizable damages.

As always, if you are unsure of your obligations or liability you should speak to a qualified solicitor recommended by TEAM.

     

Alex Dean, Development Executive - Recruitment Practice

Stackhouse Poland

07833 301 075

www.stackhouse.co.uk