How to best prevent an employee becoming a competitor?
One of our commercial clients had recently found that a former employee was competing, with restrictive covenants being breached blatantly.
This key employee had the passwords for our client’s website. He altered the website to divert business away from the company to himself, meaning the company was losing significant profits. This is of course a nightmare scenario that businesses of all types dread and hope will never happen to them.
However, there are measures employers can take to reduce the chances of an employee becoming a competitor.
While the employment is ongoing
Firstly, employers can insert a clause within an employee’s contract, instructing them to devote ‘all their time, attention and abilities’ to the business when they are employed. This means that an employee would not be allowed to set up a competing business during working hours.
A further preventative measure includes that of including such competing activity within a list of matters that would constitute gross misconduct in the employer’s staff handbook.
The above two preventative measures can not only act as a deterrent for an employee but would put the employer in a stronger position to immediately dismiss if they find out about the activities whilst the employee is still employed.
After the employment has ended
The most effective preventative measure is restrictive covenants. These contractual clauses are used to prevent a former, often more senior employee (after their employment has ended) from:
- enticing away existing clients/customers;
- poaching employees; and
- representing themselves as associated with the former employer.
Post-termination restrictive covenants need to be well-drafted to enforce because if they go further than reasonably necessary they will be unenforceable. It is particularly difficult to show this ‘reasonableness’ element and judges have to look at a number of factors when assessing ‘reasonableness’. The upshot of this is that employers must take legal advice on whether they are successfully preventing employees competing with restrictive covenants each time they recruit and promote.
This is because in order for restrictive covenants to be enforceable, they need to be tailored specifically bearing in mind the employment relationship. Our article on how to stop employees competing with restrictive covenants gives more details.
By Zahid Reza
Image used under CC courtesy of Fe llya