Case study: contract guards against unfair competition

A client in the North West automotive sector approached us after a disgruntled employee resigned and set up in competition, while also pursuing a legal claim for constructive dismissal.

How your key players can become arch rivals

The former employee’s lawyers were threatening to go to an Employment Tribunal following allegations he had been unfairly treated in a number of ways, which included the level of bonus payment awarded to him.

Although our client had a robust defence, the prospect of having to defend an Employment Tribunal claim represented a major management headache. However, the former employee had signed a post-termination restrictive covenant, drafted several years earlier which barred him from competitive activity for a specific period.

Why restrictive covenants are crucial for safeguarding a business

We countered the move to bring a constructive dismissal claim by threatening to seek an injunction at the High Court to enforce the post termination restriction. Almost immediately, the other side hoisted the white flag.

Not only did the ex-employee drop his constructive dismissal claim, but also agreed to sign binding and enforceable undertakings that he would immediately cease trading and would respect the post termination restrictions.

The restrictive covenant was so tightly drafted in favour of our client that the issue was settled quickly and efficiently, avoiding the need for an expensive and time-consuming Employment Tribunal.

Vital steps you should take

All businesses can protect their legitimate business interests by barring key employees from dealing with or soliciting work from customers and suppliers for a period of time. This can be done within the employment contract. However, it is vitally important that such restrictions are drafted on a bespoke basis to avoid the risk of the courts determining they are too broad to be enforceable.

When recruiting key members of staff who will soon have the ear of your customers and suppliers, it is crucially important to ensure restrictive covenants are added to their employment contracts. An audit of your existing key employees is also highly advisable to ensure that they too are covered.

By taking this cost-effective action, a business will gain a set period when it can focus on strengthening relationships with customers or suppliers who might be tempted to move to a competitor or a new business set up by an ex-employee.

If you require advice on post termination please call the Employment team on 01254 258321.

In HD news articles:
Welcome to our enewsletter, In HD, issue one
Remove the burden and risk of employment claims
Case study: contract guards against unfair competition
Don’t let boardroom disputes become a turf war
Delivering results: testimonial