Safeguarding Your Business: The Importance of Valid Restrictive Covenants and Handling Employee Breaches
As an employer, protecting your business interests and confidential information is paramount to maintaining a competitive edge. Restrictive covenants play a vital role in safeguarding your business from potential harm caused by departing employees. James Twine, Business Law expert, advises on the significance of valid restrictive covenants and provides guidance on how to address breaches when they occur.
Understanding Restrictive Covenants
Restrictive covenants are contractual clauses included in employment contracts to limit an employee's actions and behaviour both during and after their employment. These covenants typically focus on specific areas, such as non-competition, non-solicitation, non-poaching and non-disclosure, and are intended to protect your businesses trade secrets, customer base, staff and sensitive information.
The Importance of Valid Restrictive Covenants
Restrictive covenants act as a safeguard against unfair competition and prevent former employees from using confidential knowledge or client relationships against your business. They are instrumental in maintaining your market position and preventing key talent from immediately joining competitors and/or starting up in competition.
Preserving Confidential Information: Valid restrictive covenants help protect confidential information, such as trade secrets, pricing strategies, and intellectual property, by prohibiting employees from disclosing or using this information for personal gain or competitive advantage.
Client and Customer Retention: Non-solicitation clauses prevent departing employees from actively targeting your clients, customers, or suppliers, preserving your business relationships and revenue streams.
Preventing Unfair Competition: Non-competition clauses can deter former employees from joining or establishing rival businesses within a specific geographical area or for a certain duration, ensuring a fair competitive landscape.
However, if your covenants are not carefully drafted or “go further than is necessary to protect your legitimate business interests” they will not be enforceable. It is surprising how many times a client comes Wolferstans looking to enforce an employee’s contract where an employee has set up in competition or has joined a competitor and is targeting their former clients, and we are in the unfortunate position of advising that the contract cannot be enforced. Sometimes there are other avenues to pursue, particularly where confidential information has been stolen.
The frustration is that contrary to popular belief, where covenants have been properly drafted and entered into, they will be enforceable against your former employees. If your business would be at risk if one or more of your employees were to leave and start targeting your customers, it is essential that you have appropriate covenants in place. We can review your covenants and if necessary, re-draft them so that they can be enforced.
What to Do if an Employee Breaches Restrictive Covenants
If you suspect an employee has breached a restrictive covenant, start by collecting relevant evidence. This may include emails, contracts, client lists, or any communication indicating a breach.
At Wolferstans, we have highly experienced employment solicitors who specialise in restrictive covenant disputes and can assess the situation for you and advise you on the best course of action. It is however imperative you act promptly, leave it too late and not only could your business be at risk, but a Judge may decide that too much time has passed to impose an injunction.
If necessary, we can seek injunctive relief to prevent further breaches and protect your business interests. Pursuing legal action through the Courts may also be necessary to seek damages or enforce the terms of the restrictive covenant.
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