The line between legality and illegality when dealing with a former employee poaching clients from your company lies with the contractual agreement signed by the former employee. Outside of that, there is nothing a business owner can do through legal action, save for a few circumstances. But what are they, and how else may you protect your business?
Real Business is putting together this article to outline the options an owner will have, including an overview of the laws governing theft from a former employer and more.
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How Do I Protect My Business From Former Employees Poaching Clients?
The main way to protect yourself and your business from a thieving ex-employee is via a restrictive covenant. Restrictive covenants are documents or clauses within a contract, in this case, employment contracts or separate agreements (which we will get into later), which prevent them from taking action that harms the business that they once worked for. This covers not only the stealing of clients, but also poaching employees, releasing confidential information, and deliberately damaging business-to-client relationships.
Remember that restrictive covenants go before a judge when used in legal action, and can be thrown out if seen as too broad or unfair. Always consult with experts when constructing restrictive covenants. Ensuring you also have the best employment relationship possible with your ex-employee not only helps prevent client poaching from happening in the first place, but also helps your court case in the eyes of the judge.
Your Rights As An Employer
When dealing with clients being stolen by ex-employees, there are two scenarios – one where you had a restrictive covenant within the employee’s employment contract, and one where you don’t.
- With restrictions – Depending on whether the claim is high or low value in terms of damages, the employer would have to go to high or county court respectively.
- Without restrictions – There is little to no legal action you can take. Your best bet is to find evidence of misconduct, such as misuse of confidential information or trade secrets.
Their Rights As An Employee
Outside of being bound by the restrictive covenant, employees’ rights end when they use proprietary client lists, confidential information, or trade secrets to solicit clients.
Your Guide To Preventing Client Poaching
As a business owner, part of your job is ensuring that your legitimate business interests are protected via the many contracts and agreements that exist in the business world. The following is a breakdown of precisely these elements.
1. Write A Restrictive Covenant Into Your Employment Contracts
As we’ve previously mentioned, restrictive covenants can, and are, thrown out by judges on various grounds all the time. As a result, we always recommend you have a specialist solicitor in employment law or commercial law draft and even enforce these covenants.
Nonetheless, your covenant should have the following details outlined:
- Type – Restrictive covenants come in different types, such as non-solicitation, non-dealing, etc
- Time limit – Covenants tend not to last forever, though they typically last between 6 to 12 months.
- Geographical restrictions – Set the restrictions on where the covenants are in effect.
- Protection of key clients – Write a clause that forbids key clients from being in contact with ex-employees post-departure.
2. Get A Signed Copy Of The Contract Of Employment
Whilst you will always have a copy of employment contracts, you will not necessarily have a signed copy. This provides proof that they have read and acknowledged the terms, and in the event of a covenant being broken, it is admission that they went against the contract that they signed.
3. Remind Your Employee When They Hand In Their Notice
When your employee leaves or begins their notice period, have a friendly discussion about their plans. You must remind them of the clause, and although this may seem confrontational, understand that it’s necessary. This is because even though you may be able to take legal action against them, they may still do damage to your company that isn’t easily erased.
4. Enforce Those Covenants In A Court Of Law
After your ex-employee leaves, if you receive information suggesting they’re in breach of contract, you can enforce the covenants legally. Enforcing restrictive covenants is done via court, and we recommend it be submitted by the same specialist who wrote them up. It will be time-consuming and likely cost the business money, but it’s necessary to recoup any losses and ensure the business world knows of your integrity.
What Are Alternatives To A Restrictive Covenant?
Not all employers see a restrictive covenant in a good light. Depending on the size of your business, and the severity of the case, it can cost £1000s in lawyer fees and court costs to pursue. Furthermore, many businesses look down on restrictive covenants – 60% of businesses. This is because these businesses suffer in hiring people who are bound by these clauses, thereby “starving” the labour market.
Nonetheless, alternatives are as follows.
Other Agreements
There are different agreements to restrictive covenants.
- Non-Solicitation Agreements – Non-solicitation agreements do the same thing as covenants, only they target and protect the relationship between the company and the customer. That being said, it’s harder to prove and doesn’t restrict customers from going to the ex-employee.
- Confidentiality Agreements – This agreement protects the trade secrets of the company, but its use is very conditional and suited for some industries more than others.
- Non-Dealing Clauses – This has extensive protections for your business, stopping former employees from dealing with your customers altogether – but be careful writing them up, judges have been known to find them too broad or unreasonable.
- Garden Leave – Garden leave stops competitors from immediately nabbing your employees by restricting said employees from working. While this stops the transition of your customers to another business, it’s a temporary solution that is also costly, since you have to pay them to leave. If you cannot remedy the risk of your customers leaving in the meantime, they may just leave regardless.
Customer Loyalty Scheme
A senior member of staff leaving and running the risk of taking clients with them is scary, but whilst the notice period is in effect, you have some solutions. Switch your focus toward your existing customers and sweeten the pot with a loyalty scheme, such as discounted rates, reward schemes and free services.
Conclusion
Restrictive covenants are a strong way to discourage your ex-employees from poaching your clients and stealing work from under you. But enforcement should be scaled against that potential loss in revenue. If you missed your chance to add restrictive covenants to the employment contract, consider if any of the aforementioned agreements may suffice as security. Otherwise, letting your ex-employee and client leave without consequence is also an option, and instead, turn your attention to growing your business without them whilst changing the mechanism by which the poaching may have happened in the first place.
Whichever approach you take, there’s no denying that an ex-employee approaching clients is disrespectful and upsetting for many business owners. But if you respond appropriately, you can make sure your business isn’t hurt by their actions too.
