Losing a key senior employee is a headache for any business. In addition to having to replace them and manage the transition, you may have concerns (or even information) that the departing employee is planning to set up in direct competition or aims to poach members of your staff or customers.
‘The first step in addressing such concerns will be to check their contract and review the non-compete clause(s) which are designed to protect your business,’ says Kiran Solanki Solicitor at Crane and Walton Solicitors LLP. As long as the clause is enforceable, then there are a number of options available depending on whether the breach of contract has already taken place and already damaged your business. However the issue of enforceability is a critical one, as a court will generally be reluctant to accept unreasonable restrictions that inhibit economic growth, competition and innovation.’
Kiran outlines the main options for enforcing non-compete clauses set by your business, and how the courts will assess these in practice.
Negotiation
The first step would always be to contact the employee and to ask them to immediately stop the behaviour causing the breach. This is best achieved through a solicitor’s letter, where we will remind them of their obligations under their contract and state that unless they desist immediately, we will issue proceedings against them in court without further recourse to them. We will also alert them that we will be seeking not only damages from them, but also the costs of issuing a claim in court.
Going to court
If this does not work, you have a right to bring a claim in court against the employee for breach of the employment contract. You can ask the court to take enforcement action to put a stop to any breach continuing, and you may be able to seek compensation for any breach that you can prove has resulted in a loss.
The remedies you are entitled to will depend on the circumstances, but can include:
Obtaining an injunction
You are entitled to seek an injunction to prevent the breach from happening, or to stop the breach from continuing, depending on when you obtain knowledge of the breach.
This means asking the court to put an immediate stop on the activities of the employee, with legal consequences for failure to comply. This can be very effective and is the best remedy for an employer who wants to stop a past employee from continuing to work for a direct competitor, or from using information such as product designs, a database, or other intellectual property.
An injunction can be obtained very quickly if we make an urgent application to court on your behalf, specifying that the continued breach is causing damage on a daily basis. This is a very effective way of preventing further damage until the court can hear all of the arguments at a hearing, if that is appropriate. For example, the court can order that an employee immediately ceases to work for a particular client, or to stop using certain information that is in breach of a non-compete clause, as long as the court considers the clause is ‘reasonable’.
Directions
As an alternative, or sometimes as part of an injunction order, the court can provide an order which gives specific directions to the employee on what they can and cannot do going forward. This can stop them acting for certain clients, or stop them using information gained from you in their next employment. There will be penalties for breaching these directions. Penalties can range from costs consequences to financial compensation for damages, to imprisonment for contempt if an injunction order is breached.
Seeking compensation for a breach of contract
The best option for you as an employer is to prevent a breach from occurring in the first place, or to stop it continuing using one of the above methods. However, sometimes you will only be made aware of a breach after the damage has been done, and an injunction is not going to help you if the damage has already occurred.
In this situation, there is the option to apply to the court to seek financial compensation for a breach that has already occurred that has caused damage to your business. This might be by the former employee taking your clients or work, damaging your reputation and brand, or by using information taken from your business in their new venture in a way that affects your business.
You will need to have collected evidence to show there has been a breach, and as a result this has caused damage to your business where financial compensation is appropriate. For example, if your former employer has set up in business by themselves and procured some of your clients and contracts, you may be able to show a loss of profits as a direct result. This information can be used to calculate a claim for compensation. The calculations for loss can be quite complex when considering loss of profits for example, and you will need to involve your accountant. You are likely to be compensated only for loss that you can prove.
The remedies above can be mixed, so it may be that you can ask for an injunction to stop the continuation of a breach, and obtain compensation for the damage caused to your business from the date of the breach to the date it is ordered to stop.
Recovering legal costs
If your case is successful in court, you will be entitled to ask for the legal costs of your enforcement action to be paid by your former employee. These can be very substantial, particularly when you have had to take action to obtain an emergency injunction.
The prospect of these costs alone should be a good deterrent to your employees breaching a non-compete clause.
The court’s evaluation of the enforceability of a non-compete clause
There is no legislation that specifically states what is a ‘reasonable’ non-compete clause. This will be considered on a case-by-case basis. Your success in court will very much depend on the particular clause, as a court will not enforce all contractual clauses simply because they are in a contract. There must be a legitimate business interest that is being breached, which is causing you financial damage, and the non-compete clause must be reasonable in the circumstances and only restrict what is necessary for the shortest time reasonable to protect your business.
When a court considers if your non-compete clause is reasonable and therefore if it should be enforced, it will balance the interests of your business against the general principle that people in the UK must be free to work and move on from employment without unnecessary restrictions.
A court is therefore more likely to enforce a clause that has a reasonable time duration. This will depend on the industry you are in and the nature of competition, but typically anything over six months would not be tolerated, and three months is considered more reasonable.
The court will also look at geographical restrictions to see what is reasonable. For example, if your clause says employees may not compete within a five mile radius of your business, then this might be considered reasonable. However, a 100 mile radius, or a very broad geographical restriction without good justification is unlikely to be enforceable. However, this will depend on the type of business you are in.
The type of business restricted cannot be too wide either.
How we can help
If you discover that a former employee is breaching a non-compete clause it is essential that you act quickly with your legal team to prevent further damage. If the worst does happen, it is important that you are expertly represented to ensure the court will work with you to enforce a non-compete clause required for the protection of your business.
For more information or to discuss setting up a trust, contact Crane and Walton Solicitors LLP in Coalville on 01530 834466. Crane and Walton LLP also has offices in Ashby, Leicester and Melbourne.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
