Keeping a lid on competition from ex-employees

Being aware of threats to your business is a basic yet fundamental aspect of sound risk management and effective business planning.

However, when identifying such threats, many businesses fail to consider the potential danger posed by their own employees. In particular, I’m talking about those employees who may decide to leave the business to work for a competitor or set up in direct competition.

It is essential that businesses put measures in place, in the form of restrictive covenants in employment contracts, to prevent key employees from soliciting business from their existing clients and suppliers for a period of time after leaving the business.

I have touched on the importance of using restrictive covenants in previous blogs on this issue, and there are numerous examples of the courts upholding these covenants when they have been breached by former employees.

The case of Sunrise Brokers LLP v Rogers

Indeed, a recent High Court decision has further strengthened the hand of employers when it comes to dealing with the fall-out from a breach of employment contract.

In the case of Sunrise Brokers LLP v Rogers [2014] the High Court declared that an employee who had purported to resign with immediate effect (when he was obliged to give a period of notice), was still employed as his employer had not accepted his resignation.

In this case an injunction was granted, requiring the employee to observe the terms of his employment contract by not working for a competitor until the date on which the employer had offered to release him early from his notice period.  Crucially, during that time the employee, who had not returned to work following the purported resignation, was not entitled to be paid during this time as he was not ready and willing to work.

Successfully enforcing restrictive covenants in employment contracts

We have ourselves dealt with a number of cases recently where we have made it possible for our clients to protect their businesses against ex-employees.

In one instance, we were approached by a recruitment agency after a ex-employee set up in competition and attempted to divert a large number of its clients.

The former employee had entered into post-termination restrictive covenants with his employer that prevented him from competing with the business, poaching staff members, and soliciting and dealing with restricted customers of the business.

In breach of these restrictions he contacted a number of his former employer’s clients and took a copy of the client database. He also published these actions on Facebook. We successfully gained an urgent injunction in the High Court and thereafter succeeded with a damages claim against the former employee and his new company.

In another matter, we advised an exclusive health and fitness club. In this matter its employee (a personal trainer) was diverting work for his own financial gain and using the facilities of his employer to carry out this work.

We advised on the employee’s dismissal for gross misconduct and were able to obtain undertakings from the former employee preventing him from acting in breach of the obligations contained within his employment contract. We were also able to secure a damages payment of money diverted from our client by the ex-employee.

These cases illustrate the importance of having effective post-termination restrictions within employment contracts and how they can protect your business assets.

For more information on this subject, or any other employment law matter, please call the Employment team on 01772 258321.