We’ve published lots of guidance on this topic – it’s an area where we have lots of experience in helping clients.
Most recently, in January 2019 Heena Kapadi explained the potential implications of a Supreme Court case on restrictive covenants, here.
Sarah Armstrong’s series of bulletins from 2016 on exiting employees provides an overview of the key considerations at each stage:
Part 1: Evidence gathering;
Part 5: Tips for drafting enforceable post-termination restrictions. (This was drafted before and should be read with the Supreme Court decision mentioned above, in mind).
These Ten Tips from Sarah Armstrong below on Protecting your business when an employee leaves to join a competitor or to set up their own business appeared in Pro Manchester’s SME Club series in September 2015.
We’ve been involved in many cases where employees have left to join a competitor or to set up their own business. When you’re confronted with such a situation as an employer it can be turbulent and stressful. As with anything, if you’ve dealt with something once (or multiple times), you’re better placed to deal with it again. Using our experience (gained from working with clients who’ve been there), we share our tips on what you can do to protect your business and weather the storm, if and when a key employee jumps ship.
- Act quickly. Time is critical. As soon as you find out that your employee is leaving you for (competitive) pastures news – whatever your relationship with them – we’d suggest you assume the worst. Take steps as soon as possible to establish as much information as you can (see below), and, if need be, to limit the damage. It’s best to get good timely advice so that (however they have behaved) you can do things properly from the outset.
- Identify any threat. Establish what your former employee’s been doing and whether any other members of your workforce have been collaborating with them. Do you know where they’re going or what they’ll be doing? Are others in your team ripe candidates to follow suit? Are there any key employees that the former employee had contact with or access to and who, perhaps because the former employee had access to their salary and personal details, they might be able to influence?
- Assess and restrict the effect of your former employee’s conduct internally (on other employees) and externally (on clients, customers and suppliers). How will you explain your former employee’s absence to their colleagues and/or to your clients and customers, if need be? Which of your current and potential clients, customers and suppliers were their key contacts? Can you pinpoint any particular business or prospective business that’s at risk of being taken by the employee?
- Brief your lawyers as soon as you can. If you wish to take legal action you’ll need to move quickly – any delay can damage your prospects of success. Your legal team will need to understand the nature of your business, the market in which you operate and what part of your business is threatened by the activities of your former employee. They’ll help you to pinpoint the other information you’ll need and what steps you can take (legally) to obtain it.
- Gather as much information about your former employee’s role within your business as possible. Is there a signed contract of employment? If so, when was it signed? Were terms set out in any other documents such as a staff handbook or contract variations? What does the contract say about outside interests and activities during employment, confidentiality during employment and post-termination and restrictive covenants applying after termination of employment? What activities did the employee carry out during their employment? Did they deal with confidential information or trade secrets? If so, what did they have access to?
- Collect and consider evidence as to whether your former employee has been/is undertaking competitive activity in breach of their ongoing obligations. Do you or colleagues recollect any unusual or unexplained behaviour (such as late-night or weekend working, an unexpected period of client entertainment, or hours spent at the photocopier)? Could there be evidence of wrongdoing on your former employee’s computer, smartphone or other electronic devices? Could public sources (such as companies house records if they’ve set up a new business), or social media (such as Facebook, LinkedIn or Twitter) be a useful resource?
- If there’s evidence of wrongdoing, consider whether this is causing, or will cause, damage to your business. If you’re confident that your former colleague is setting up in a wholly new area and won’t be competing with you, you may be willing to let them go quietly (and wish them well!). If, at the other extreme, they’re off to work for your biggest competitor in the same area as you and they downloaded your confidential client lists shortly before leaving, a more aggressive approach will likely be called for.
- Consider your options. Once you’ve carried out investigations and obtained evidence, you should be in a position to assess whether the former employee’s activities pose a real threat to your business and, if they do, to decide whether you want to threaten litigation or issue proceedings. If you’ve appointed a legal advisor, they’ll be able to talk you through the pros and cons of the options open to you. They’ll also be able to advise whether or not you have a strong case, what the risks are, and whether there are areas where you may need more evidence.
- Decide who to sue (if anyone). If you decide to threaten or take legal proceedings, you’ll need to decide whether you do so against: (A) your former employee; (B) a third party, such as the former employee’s new employer who’s induced or conspired with the former employee to breach their contract; and/or (C) a recipient of your confidential information. Different considerations apply in each case so you should take legal advice if you’re unsure.
- Decide what you want. Where there’s an immediate threat to your business, applying for interim (temporary) relief may be the best option. Where things are more finely balanced, you may want more information (in which case delivery up and search orders, or engaging a forensic expert could be considered). You may be happy to let that one employee go, but be keen to “stem the tide”: tightening up the ship to prevent a mass future exodus. Whatever you want, legal advisers like the lawyers here at HRC Law LLP can help you to achieve it.
The information in these pieces is general overview information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.