04.11.2019

Protecting your Business

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Protecting your Business

 Show Interest
It’s important to carefully consider ways of protecting your business at the outset.  Would any of your employees pose a threat to your business if they resigned or were dismissed?  Would your brilliant new recruit be able to take business away from you when they decide to move on?

You can protect your business by incorporating specific clauses in your contracts (“restrictive covenants”).  But beware - as a general rule restrictive covenants are only enforceable only if they protect a legitimate business interest and only for such time as is reasonable. 

This means that if a business wants to rely on them, as opposed to just using them as a deterrent, for each particular employee they employ they would need to assess the nature of the risk that individual poses to the business and then construct the restrictive covenant around that.

 

For example, you might have a salesman who travels around Surrey and Sussex, visiting customers and potential customers about once a month and selling a range of cleaning products.  If he left the risk to your business would be that he could:
·      join or set up another company selling similar or the same products in Surrey and Sussex
·      contact the customers and potential customers that he has been in contact with, say, over the last 6 months and try to persuade them to buy from him
·      contract your suppliers and distributors and try to undercut your arrangements with them
·      try to persuade your employees to join him in his new business or his new employer
·      use information he has about your business plans, promotions, target markets etc for his new business/employer

In this example, you would want to fairly tight restrictive covenant but just covering area where he worked the type of products he sold.  6 months should give you time to revisit all of the people he visited and re-assure them that they will continue to be served and looked after by the new person.  So this is how long the covenants should last.

If the same business employed an admin person who did bookkeeping and paperwork, answered the phone etc, or who packaged and sent out products, he would be no real risk to the business if he left, other than he might have customer lists/addresses.  So this covenant would be must more restricted.

If the same business had a director who left, he would know much more about the business and its plans, probably have an on-going relationship with the sales team, customers and suppliers and so could be a real threat to the business.  You would not want him to work with any business in competition with you in a much broader area geographically and the covenant would be for a longer period, probably 12 months.

Most employers are too 'lazy' to do this exercise and use a 'one size fits all' approach.  This may work for some of their employees but is unlikely to be enforceable for all of them and, in that situation, they are really just a deterrent.

The starting point is to assess the actual risk to the business each individual could pose if they left, weigh up how serious that threat would be and the time necessary to enable to business to take steps to protect itself.   If you would like a review of your contracts to ensure that they properly protect your business, or if you would like further advice, please let me know.
  • Employment Law (Unfair Dismissal, Redundancy, Disc
  • employment contracts
  • Restrictive Covenants
  • Protecting your business
  • contract disputes

I am a qualified employment law solicitor with over 25 years' experience working for the most part with employers. All businesses are vulnerable to tribunal claims from employees. I specialise in…

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