What can you do when an employee leaves and starts competing with your business? Following is a brief overview of some of the most common questions we hear and what you need to know to help protect your business….
Are post-employment non-compete restraints enforceable?
There is a myth that courts never enforce non-compete restraints. This is not true. The courts will enforce them….but they need to be reasonable.
For instance, the courts are reluctant to enforce terms that prevent employees from earning a living, so a general non-compete will be hard to enforce. However, preventing an employee from poaching clients they got to know while they were employed would generally be considered as reasonable. The time period you include in the restraint also needs to be reasonable, or at least capable of being read down so that it can be rendered reasonable.
Should I make the employee work out their notice period?
Making use of the notice period is one measure that is often overlooked by employers. During the notice period an employee is still employed, so they can’t compete and need to act in the best interests of your business. Therefore, making an employee work out their notice period, rather than paying them in lieu of notice, can be a good way of buying time while you shore up your business.
If you pay in lieu of notice, the employee is no longer employed so is free to compete (if there are no post-employment restrictions).
What can I do if the employee has taken confidential information?
If an employee takes confidential information, such as client lists, business plans etc, with them when they leave your employment, you can use that as the basis for an injunction preventing them from competing with your business. A quick check of the employee’s emails or hard drive will often reveal whether they have actually taken confidential information and provide the evidence you need.
These are just some of the options available to protect your business when an employee leaves and intends to compete. Often, a well-drafted letter to the former employee will be enough to make them come to an agreement with you about how they will, or will not, compete. Reaching a mutual agreement, without becoming involved in a potentially lengthy dispute, is by far the best and least expensive way of protecting your business.
For assistance with drafting employment contracts and restraint causes, or advice on further protecting your business, contact Sean Melbourne at email@example.com.
A copy of the article can be downloaded here.