Can you stop employees leaving your business taking contacts with them?

Darren Sherborne, of Sherbornes

Darren Sherborne, of Sherbornes - Credit: Archant

You can’t stop employees leaving your business and taking your contacts with them – can you? Darren Sherborne, of Sherbornes Solicitors Ltd., explains the process

Individuals leaving and taking business with do you stop it? It’s never on anyone’s priority list until it’s too late. A senior technical, sales or relationship person leaves your business and takes their contacts to a competitor.

I hear it all the time from business owners. They always say: “You can’t stop someone leaving and stealing your customers”. Well actually you can. But it’s getting harder, and the employer’s problem is usually in the groundwork. Something they did, or did not do, years before the issue arose.

Until recently, lawyers advised clients that it did not matter that an employee had not signed their contract, as long as they had received it and worked.

A case last July threw this into doubt, and the advice and approach to both contract changes and introducing-post termination restrictions has changed. The case is called Tenon v Cawley, and it’s worth a read.

An employment contract will need to be signed if it has terms which are detrimental to employees and the employer wishes to enforce them.

In this case, the employee started in 2008, and was promoted to Operations Director in 2016. She was given a new contract when she was made a director, but did not sign it.

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Tenon later left and persuaded a colleague to leave and join her in a new venture.

The employer sought an injunction to stop her doing it again. The court refused the application, for several reasons.

No signed contract. The court pointed out a return to an old position in employment contract law, that you cannot rely on implied consent of an employee to a change, if the change is not immediate. You can only rely on implied consent when the change takes effect. This might bite an employer, for example if sick pay is reduced. You cannot infer consent until the employee has been sick and accepted a lower amount than previously. It will certainly bite on post termination restrictions.

No consideration. Consideration is the legal principle without which you cannot have a contract. The employer argued that continuing to work, in a new and better paid role, was consideration. The court said it was not.

Reasonableness of the restrictions. The judge questioned if the covenants were reasonable because other senior members of staff, with similar access to clients and data, did not have those restrictions.

Finally, the judge went on to criticise the aggressive way the employer had pursued matters, serving proceedings the evening before Mrs Cawley’s father’s funeral, giving short and pointless deadlines and allowing costs to become disproportionate.

What steps should an employer take?

1. It’s a good start if an employer takes a considered and consistent stance in relation to contractual restrictions. Don’t just decide to pop them in for an individual as an afterthought. Think about whether they are really necessary to protect the business, and if not, don’t waste money on them. If so, do them properly.

2. Introduce contracts and pursue employees to sign them, or to tell you what the problem with them is. You can force a change of contract if it’s necessary, but it’s good to start by listening to concerns. This exercise itself will tell you much about senior staff’s intentions in the near future.

3. Get this right at the start of employment and you don’t need to worry about consideration. If you introduce such contracts to existing people, on promotion perhaps, get your solicitor to draft the contract and ensure that “Consideration” is covered off.

4. Make sure any restrictions are reasonable and properly necessary. If not, they will not be enforceable and will just cause concern amongst otherwise good staff. Get them properly drafted, preferably by the same lawyer you will use to enforce them.

Generally, now is a good time to think about this, before there is a scramble for staff and business contacts. Employers have every excuse to pursue signatures on the contracts for the sake of GDPR for example (if an excuse is needed) and actually, you should have reviewed your contracts for GDPR anyway.

If someone is joining you with their own client contacts (presumably taken from their last employer) remember that if they can do that to their last employer, they can do it to you. Pay them a sum for their contacts. For example, £3,500 in consideration for the list of business contacts. It’s a strong legal position later if you then don’t want to lose those contacts.

Ultimately, keep a sense of perspective. If a client doesn’t want to stay with your business because they like someone that’s just left you, then legal action won’t keep them. Good service and an open attitude is your best tool, and it doesn’t cost anywhere near as much. Restrictive covenants might however be a deterrent.

For more information, visit the Sherbornes Solicitors Ltd. website.

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