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Thou shalt ot steal

23rd November 2006
Page 40
Page 40, 23rd November 2006 — Thou shalt ot steal
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Which of the following most accurately describes the problem?

your transport manager has the ear of your staff and knows all about your contracts.What would you do if he were to leave for a rival firm taking your drivers with him? What would you do if he were to bid for one of your contracts — for himself?

A restrictive covenant can prevent employees from going to work for a competitor and taking key clients or key employees with them,but only if it does no more than is reasonable to protect legitimate business interests.

Client and customer relationships are an integral part of any business. There fore, a court will look at whether the employee has key relationships with clients and customers and has built up significant goodwill. It will also consider how long it would take a replacement to buildup those relationships after the employee has left.

Employers are entitled to protect knowledge that an employee has come into possession of through their work, which can include customer and supply lists. General knowledge and information that is in the public domain would not he confidential information.

It is difficult enough coping with the loss of a senior employee, but it is many times worse if he takes his whole team with him. Maintenance of a stable workforce is a legitimate. protectable interest as skilled employees are recognised as an invaluable business asset.

Common restrictions placed on managers leaving a company include preventing the poaching of customers and senior or skilled em

ployees. such as drivers or other managers with whom the individual has worked.There may also be a clause to prevent working for a competitor.

For an effective covenant, the employer should identity the interests it is trying to protect. These could be the relationship that an employee has developed with customers or sensitive confidential inl4mation. A blanket approach is Likely to be unenforceable.

Relevant fields

It the covenant aims to protect customer relationships. the employee should be restrained only from dealing with customers with whom he had a relationship or about whom he obtained confidential information through work. If the covenant is longer than necessary to protect your interests then it will fail in law. A typical covenant might last for up to a year.

Covenants set out the geographical area in which they operate. If a firm operates in only a small geographical area. the covenant should be drafted to restrict activities in only that area.

Some covenants try to restrict the work that an employee can undertake after employment. Such restrictions are difficult to enforce because they may prevent an employee finding another job in their industry. Clauses that restrict approaches to former customers should apply only to competitive businesses and activities If your former transport manager approaches a former customer with an offer to clean that firm's windows it could not be deemed to be a corn petitive activity, whereas if he offers to deliver the firm's goods it could.

Ultimately, whether a restrictive covenant is enforceable or not can only be determined by a court. But from an employer's perspective, inserting a restriction in a contract may act as a deterrent to the employee.

The primary position adopted by an employer is that the restrictions are binding if an employee's employment has been terminated lawfully. If an employer has terminated an employee's employment unlawfully. then the restrictions will not be binding.

Ilan employee is suspected of a breach of coyenant,t he employer could write to him detailing the nature of the breach and asking him to stop the prohibited action. However, if the actions of the employee are proving damaging to the employer's business, there may not be time to do this and so it may be necessary to apply to the court for an injunction.

While an employer may enforce a covenant by seeking an injunction from the court, this process can be costly. There is the risk of failure with even the best drafted covenant.A claim for damages can also be made by the ex-employee.

In the end it may he more effective to renegotiate restrictive covenan ts on termination of employment by way of a compromise agreement, particularly if the original covenants are considered too wide to be enforceable. •

• Charis Marlyn and Mark Watson are employment lawyers at City solicitor Fox Williams LLP.

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Organisations: UN Court

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