A recent High Court case between two resellers has reignited the debate about non-compete clauses and their efficacy.
Basingstoke reseller Decorus was awarded almost £30,000 in damages after taking former employee Daniel Penfold to court, along with Procure Store Limited, a company he had a hand in setting up. A judge ruled he breached certain duties in his contract when he left his former employer.
Some believe restrictive covenants and clauses are not worth the paper they are written on, designed merely as a scare tactic to prevent staff pinching clients before moving to a rival or setting up on their own.
But as the recent Decorus case proves, some firms are prepared to go all the way to protect their businesses.
CRN spoke to legal experts experienced in the field about how employers can ensure their contracts are fit for purpose and how to avoid a lengthy – and expensive – courtroom showdown.
1. Be specific
Being over-enthusiastic with non-compete clauses and restrictive covenants can end up being detrimental, according to Luke Hutchings, partner at Taylor Rose Law, who said being specific is essential.
"When the court is looking to whether they should enforce a contract, they want to reassure themselves the employer has made the covenants as narrow as possible," he told CRN. "You can't put something in there saying you can't start a business for five, 10 or 20 years after you leave us. If you're asking a court to uphold your covenants, you have to be specific and you can't put it into everyone's contracts.
"You want to focus on a short period – six or nine months – after which your knowledge will fade away anyway. The more you try to bespoke your covenants, and the more reasonably you draft them, the much greater likelihood the court will uphold them."
2. Conduct an exit interview
Employees can stay at a company for many years, meaning details of their contractual obligations on leaving can be easily forgotten. To avoid this escalating into a much bigger problem further down the line, Technology Law Alliance solicitor Caroline Lee said an exit interview is essential.
"When an employee notifies the employer they are planning to leave, it is important to have an exit interview with them to remind them of the restrictive covenants, to check where they're going, and to confirm they've not copied anything for themselves and that they understand the restrictions," she said. "There needs to be a proper discussion so these things don't arise, or at least you can say the employee has not told us the truth when we asked these direct questions."
3. Seek professional advice
Tweaking a contract or adding in a few lines yourself might seem like a simple enough task, but Taylor Rose Law's Hutchings said whether or not this will stand up in court is another matter.
"You may think you have all your staff under covenants, but a lot of them I see make me cry a little bit inside, because they are not very good," he said. "It is hard to get through to people that they are not going to stand up. People say 'I want water-tight covenants for all my employees' but if you are going to put the same wording into everyone's contracts, it is really weak. If you are worried people are going to leave and start up on their own, see a solicitor.
"You've got to make your restrictions as narrow as possible, make them bespoke and as specific to the people as you can. There is no such thing as watertight protection but there are ways to avoid a very expensive court battle."
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