Enforcing Restrictive Covenants
Have you found out that an ex-employee has gone to work for a competitor and is breaking a restrictive covenant?
If you find that an ex-employee has gone to work for a competitor, you can:
- write to your ex-employee reminding them of the restrictions and ask for a statement or declaration that they will abide by the contractual restrictions, and
- write to your ex-employee's new employer to provide them with a copy of the restrictions. Warn the new employer that you will take further action if you believe that the restrictions have been breached.
You can also apply for an injunction if you discover that an ex-employee is breaking a restrictive covenant, you can apply for an injunction that requires the employee to "deliver up" or destroy confidential information. This means that you can ask the court to give an order to require the employee to stop immediately. Such an application must be made promptly. A court hearing may be set to allow the court to hear the full evidence at a later date in another trial.
If you claim that you have suffered financial damage as a result of the ex-employees breach of the restrictions, you will need to show evidence of that loss. This will usually be a loss of clients and/or profits on contracts.
You may also choose to sue the new employer. This action warns the competitor and other competitors that contractual restrictions have teeth and will be enforced. Also, the new employer is more likely than the ex-employee to have money with which to pay compensation if the court finds that the restrictions have been breached.
What can you do to Enforce Restrictive Covenants?
firstly, speak to a specialist Employment Law professional who will advise on how to proceed in the circumstances.
Check your employment contracts
A well-drafted employment contract can act as a deterrent to ex-employees and put them off taking client and contract information away with them – or setting up in competition.
Our employment team can advise you on appropriate clauses for your contracts depending on the type of employee: it is important to ensure that contracts are tailored to suit the particular employment set up.
We can also review your current employment contracts to ensure that they will have a good chance to stand up in court should an ex-employee take action that affects your business.
The importance of well drafted restrictions was highlighted in the case of Prophet plc v Huggett.
Mr Huggett was the UK sales manager of a software company, Prophet and a post-termination restrictive covenant was in place to prevent him from selling Prophet's software after he left.
Mr Huggett joined a competitor, which sold competing software but which was not, technically, Prophet software (as only Prophet sold Prophet software). Read literally, the restrictive covenant provided no protection to Prophet as nobody else sold their software.
The High Court held that the clause should be rewritten to give effect to the intention of the parties, to prevent Mr Huggett selling software which was similar to Prophet software.
The Court of Appeal disagreed. It was pointed out that a purposive approach could legitimately be taken where a restrictive covenant was ambiguous. But this one was not ambiguous - it was just badly drafted.